Clean Technology

Community Solar Farms: What Are They, and How Are They Financed?

Community solar farms offer the benefits of solar energy without the need to install solar panels on an individual property. Three-quarters of Americans lack access to rooftop solar—community farms aim to make green energy accessible to more people without asking for potentially prohibitive up-front payments, which average $18,500 nationally.

Shared Infrastructure

Community solar farms allow multiple properties to benefit from shared solar panel infrastructure. It is particularly suited to renters and apartment dwellers, who typically have limited space and capital to install their own system. Lower- to middle-income groups are also key beneficiaries, given the substantial up-front cost of solar. Meanwhile, 49% of houses are unsuitable for rooftop solar due to factors such as shade.

Community solar power projects put solar power within reach of these homes. Furthermore, participants in community solar power projects do not have to worry about the hosting requirements, maintenance, or aesthetic issues related to rooftop or property solar photovoltaic systems.

Only 22 states and Washington, DC, have policies supporting community solar.

Routes to Financing

Community solar programs generally operate on a subscription basis without an up-front cost to join. Once the solar panels generate electricity, each participant receives credits to obtain cheaper electricity. In the largest deal of its kind to date, community solar farm owner-operator Nexamp recently raised $440 million via syndicated financing to help fund subscription-based projects. According to Nexamp, subscribers can save about 10% on electricity.

Meanwhile, some programs offer the option to buy a small stake in a community solar farm. However, this approach has the drawback of requiring people to either obtain financing themselves or have sufficient capital to invest. A project in Oakland, California, gained its financing through investments of up to $1,000 each from community members.

National Take-Up

The take-up of community solar varies greatly across the United States. Only 22 states and Washington, DC, have policies supporting community solar as of December 2020, according to the National Renewable Energy Laboratory.

Some states also have more influence than others in the trajectory of community solar. Minnesota, Florida, Massachusetts, and New York account for 74% of the 3,005 megawatts alternating-current (MW-AC) of total installed capacity between them. Meanwhile, Minnesota, Colorado, and California are expected to drive most of the country’s growth in community solar across the next five years.

A System under Stress

In Minnesota, growing demand for new projects is beginning to test infrastructure. Local utility group Xcel Energy received a surge of applications in 2020 to build new community solar power farms on its grid, more than the total number of projects completed since 2015. This swift rise has contributed to complaints from developers over delays and costs.

In New York, some community solar providers have faced criticism for aggressive marketing tactics and general confusion about the systems and process involved. Some locals in certain areas of the state also resist community solar farms over fears of a negative impact on local tourism and home values.

For advocates of community solar and ESG investors, these issues represent the growing pains of a fast-expanding industry. Investor and institutional support for renewables must weigh these potential drawbacks against the benefits of expanding renewable electricity such as fighting global warming and reducing energy bills.

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