Community Solar

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Community solar projects are solar installations whose financial benefits flow to multiple customers within a specific area. Community solar customers typically “subscribe” to an offsite solar project and, in return, receive electricity bill credits based on their subscriptions.

Community solar can offer financial advantages and flexibility that onsite renewable energy projects may not. Because community solar generally does not require steep upfront costs or control over your roof to subscribe, it can enable broad participation in clean energy for a wider variety of customers — including renters and low- and moderate-income customers. Community solar projects can also support local resilience, job training, community wealth-building and reduced energy burden.

U.S. Investment in Community Solar to Date

The community solar sector has expanded at a rapid pace over the last decade and is primed for continued growth.

• The installed capacity of U.S. community solar has more than doubled, on average, annually since 2010.
• Approximately 1,813 MW of community solar was deployed in the U.S. in 2021 alone, enough to power about 344,470 homes.
• There are now active community solar projects in 40 states and the District of Columbia.
• In 2021, the U.S. Department of Energy announced a target of powering five million households with community solar by 2025.

The expansion of the community solar market is fueled in part by the overall falling cost of solar, but also by its unique attributes and its accessibility for low- and moderate-income customers. However, this growth has been constrained by policy gaps: More than half of U.S. states have not enacted legislation to facilitate community solar at the state level.

Community Solar Initiatives Under New Federal Climate Legislation

The Inflation Reduction Act includes various energy equity-focused tax incentives that promise to invigorate and further grow the community solar market. Additionally, federal grant funding is available for states, cities, tribes and nonprofits to develop clean energy projects and programs that benefit disadvantaged communities; community solar may be especially well suited to this purpose.

Community solar investments in the Bipartisan Infrastructure Law

While the Bipartisan Infrastructure Law does not contain specific community solar provisions, there are multiple funding streams included in the legislation that could be used to support community solar projects and programs. These include the Energy Efficiency and Conservation Block Grant (EECBG) program and the State Energy Program (SEP). For example, EECBG funds could support the establishment of loan-loss reserves or revolving loan funds that increase opportunities for community solar developers. SEP funds could support direct loans or grants, as well as technical assistance, for community solar programs.

Community solar investments in the Inflation Reduction Act

The Inflation Reduction Act offers considerable support for community solar development.In particular, its Investment Tax Credit (ITC) will reduce the overall cost of an array. Community solar installations less than 1 megawatt will automatically receive a 30% credit, as will installations greater than 1 megawatt that meet prevailing wage and workforce requirements.

On top of the ITC, community solar projects could earn the following tax credit adders:

• An additional 10% for meeting domestic manufacturing requirements.
• An additional 10% for being installed in an “energy community” (such as a brownfield or former fossil fuel development community).
• An additional 10% for being installed in a low-income community or on tribal land if the project is under 5 megawatts.
• An additional 20% for being installed on public or affordable housing and benefitting its residents, or where at least half of the financial benefits go to low- and moderate-income households.

Also new under the Inflation Reduction Act, community solar projects under 5 megawatts can collect the ITC for interconnection costs.

The Direct Pay provision of the Inflation Reduction Act can support deployment of community solar by allowing certain non-taxpaying entities — including electric cooperatives, tribal nations, municipal utilities, local governments and community-serving nonprofit organizations — to receive the ITC as a cash refund. This reduces the need for complex tax equity partnerships and associated costs for these entities to harness ITC cost savings.

Various grant opportunities under the Inflation Reduction Act could also be used to support community solar, including the Greenhouse Gas Reduction Fund, Environmental and Climate Justice Block Grants, and the Neighborhood Access and Equity Grant Program. Specifically, the $7 billion Zero-Emissions Technology Fund Competition component of the Greenhouse Gas Reduction Fund will spur more low- and moderate-income community solar deployment through competitive grants to states, tribes, municipalities and non-profits.

Next Steps for Advancing Community Solar

Community solar faces similar challenges to commercial solar installations, including project siting, supply chain and labor issues, as well as thin cost margins at small scales. It also has unique challenges related to financing, marketing and outreach, consumer protection, and customer acquisition and management. Some community solar programs ask consumers to pay a premium for their subscriptions, which limits uptake. Further, many U.S. states have not enacted state policies to facilitate community solar or establish programs. In these states, community solar may be available only where utility-led programs exist.

As federal support flows to community solar, states, local governments and other subnational actors can help spur its development by educating stakeholders and creating a conducive environment for the growth of the community solar market.

Local governments

Local governments should consider the following actions to support community solar development:

• Create community solar-friendly zoning codes and permitting processes and ensure that fees for community solar installations are not overly burdensome.
• Identify and map publicly owned properties that could host community solar projects.
• Support community solar investments by serving as an anchor subscriber to these projects — purchasing a significant share of the community solar subscriptions and acting as a backstop to customers who unsubscribe. 
• Provide credit enhancement and financing to ensure all residents can participate in community solar programs.
• Leverage opportunities for community solar projects to support local resilience applications (such as microgrids) and other local co-benefits (such as reducing heat island effects).
• Donate publicly owned land or roof space to community solar developers or lease it at a discount.
• Consider pairing community solar programs with other local government efforts to maximize clean energy participation. For example, Solarize campaigns are group bulk purchasing programs which aim to lower acquisition costs for residential solar systems through discounted pricing, community-driven outreach and competitively selected installers.
• Provide public education and forums for community engagement related to community solar development.
• Advocate for enabling policies at the state level that support participation of low- and moderate-income customers in community solar.

State governments

States should consider the following actions to support community solar development:

• Adopt legislation and policies (such as virtual net metering) that enable community solar or expand existing community solar policies.
• When developing community solar policies, consider the potential to include consumer protections as well as carveouts and incentives that support participation of low- and moderate-income customers.
• Identify and map sites with available land, grid access and hosting capacity for community solar project development.
• Develop funding and technical assistance opportunities for community solar through an energy office or another state agency.
• Create financing mechanisms and credit enhancements (such as loan-loss reserves and interest rate buy-downs) that increase opportunities for community solar developers and subscribers.
• Convene roundtables of stakeholders to advance community solar education and identify barriers to and opportunities for community solar deployment.
• Produce and disseminate educational resources about community solar program best practices and implement robust consumer protections to ensure customers understand the product and the value proposition they are getting.
• Create online marketplaces for pairing open community solar projects with subscribers.
• Provide technical support for community solar planning and development.

Federal government

The federal government should consider the following actions to support community solar development:

• Offer long-term capacity building support to community groups — particularly organizations in frontline and environmental justice communities — to identify, understand and take advantage of community solar opportunities.
• Strengthen and grow existing community solar channels, such as the National Community Solar Partnership, a DOE-sponsored initiative that works to advance access to community solar through peer networking, technical support, and access to tools and resources.

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