Deep Dive # 1: How does Community Solar Work?
Overview: Community Solar programs give businesses an easy way to save on electricity costs by partnering with solar projects located in your electric utility without needing to be physically connected. Once enrolled at the right amount, the solar farm produces energy on your behalf, and you receive bill credits, like coupons, applied directly to your utility bill. You then pay the solar farm a portion of those credits, while keeping the remainder as savings.
Community solar is gaining attention for the benefits it can bring to electricity customers. But one question comes up again and again: “How does it actually work?” In this Deep Dive, we’ll walk through the basics step by step so you can see how the structure comes together and what it means for you.
Community solar makes it possible to benefit from solar power without having panels on your own property. As long as you and the solar project are in the same electric utility territory, you can subscribe to a share of the project. Instead of receiving energy directly, you get bill credits on your electric bill that lower your costs. It works like having solar panels of your own without needing them on site. Let’s break down how it works step by step.
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Think of community solar like using coupons. A solar project generates bill credits (like coupons) that get applied to your electric bill. In return, you pay the project owner a portion of those savings. State rules limit how many credits you can use, so the first step is finding the right amount for your facility. Once that’s set, and you know how many panels are needed to generate the right amount of bill credits, you move forward with a partnership.
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Once signed up, the value transfer process begins! The sun will begin shining on the panels your facility has subscribed to, and those panels will begin generating energy that gets sent to the electric utility on your behalf.
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When the solar project sends energy to the utility, the utility needs to know who should get credit for it. The solar project owner assigns your electricity account, and you’ll start seeing a new line on your bill called a bill credit. This credit lowers your costs and reflects your share of the project’s output.
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The final step in this process is paying the solar project owner for the value they have provided, where the most common form is paying them a percentage of the value they have provided to your electricity accounts (normally between 80 to 90%).
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With payment being made, the process is complete, where your business is able to claim the rest as electric bill savings, allowing your facility to reduce it’s operating costs and improve it’s bottom line for as long as the partnership is in place.
For Example:
Let’s say your facility consumes $10,000 in electricity spend per year. A solar farm owner will send $10,000 worth of bill credits to your electricity accounts, but then request payment for 10% of the value, or $9,000. This will mean that instead of paying the electric utility $10,000 for all of your consumption, you will instead pay the solar farm owner $9,000 for credits that offset all your consumption, allowing for $1,000 in savings per year or 10% overall. There are no upfront payments throughout this, with payment only ever being a percentage of the benefit delivered to you, meaning your facility always comes out on top.
This isn’t a one-time discount; it’s a month-to-month benefit that continues for the length of your agreement. Smaller businesses usually sign up for 1 year, while larger companies can lock in savings for up to 15 years. There’s no need to install solar panels on your property, and your electricity service stays the same. The only difference is the lower cost.
With a bit more understood about the value transfer process, the common feedback is “This is too good to be true!” While that may seem to be the case, what can help to contextualize these programs is learning more about Why Community Solar Program exist, which we tackle in the next Deep Dive!
