What is community solar?

If you want to go solar but don’t have the option of putting solar panels on your own home, community solar can be a great alternative, but there are some pitfalls to look for.

Photo of a large solar farm.

Home solar is massively growing in popularity, but not everybody has the option of putting solar panels on their roof.

Maybe you’re a renter who wants to go solar. You can try to convince your landlord that solar panels are worth it, but you might not have any luck.

Or maybe you’re a homeowner, but you’ve learned that your roof is too shaded for solar panels to work. Or you might have a roof that gets plenty of sun, but it only has about 5 years of life before it needs replacing. If you really want go solar right away, what are your options?

This is where community solar can offer a useful alternative.

What is community solar?

A community solar project is a large solar installation where people can buy shares of the electricity that the installation produces. This is sometimes called a community solar garden or community solar farm because it serves a similar purpose to community food gardens. If growing food is a hobby you enjoy but don’t have a backyard of your own, a community garden is an option in some cities that lets people have a little plot of their own.

A community solar garden is a little like that. The term “garden” is a bit misleading: these are solar photovoltaic installations that can vary in size from tens of kilowatts up to several megawatts, and generate enough electricity to power thousands of homes. That’s a lot bigger than a backyard garden.

How does community solar work?

In states that allow it, a solar developer can build a photovoltaic installation and sell shares of that project to homeowners who wish to power their homes with solar. Your share of the project entitles you to a portion of the solar power that is generated. The project tracks the power output of the installation, and your share of that electricity shows up as a credit on your electric bill. Your usage minus your credits from the community solar project is the net amount that you are billed for that month.

With most projects, there will be a line item for a subscription fee. This is where the company’s profits come from. Read more below about how subscription models work.

Where is the hardware for the project located?

The solar project will usually be located nearby in your community. Be aware that community solar projects sometimes solicit customers during the approval phase, so there’s no guarantee about the final location, or even whether the project will be approved and move forward to completion.

All of the solar panels, inverters, and wiring are located on the site of the solar farm. There’s no wiring that is added to connect the solar project to your home.

Wait - if there’s no wires, how does the solar farm power my house?

The electricity produced by the solar project goes into the grid where it powers your home and your neighbors. This green power reduces the demand on other generators in the grid, such as fossil fuel power plants, so your share of the solar farm ends up helping to reduce pollution.

There’s no need for wires from the solar panels directly to your home for this to work. An electric grid is an interconnected system, so a community solar farm 50 miles from your house that sends electricity into the grid has the same net result as if the panels were installed directly on your home. You can read a little more about how the transmission grid works in our article on why you should get solar panels.

Which states have community solar?

According to the Solar Energy Industries Association, there are 43 states with at least one community solar project online, with 1,387 cumulative megawatts installed through 2018.

If you want to find a community solar project near you, check with your utility company. Utilities often run community solar for customers in their service territory, so there’s a good chance there may be one available for you.

Third-party companies and non-profits also operate community solar around the country, so you should expand your search to include those. Several websites aggregate lists of these projects. One of the best is maintained by the National Renewable Energy Laboratory. Their Community Solar Project Database is in Excel format and was updated as recently as last year. While a year-old list may seem dated, these projects usually take awhile to move through the approval process, so this list is still a good resource.

What are the different types of community solar projects?

With community solar, there are two basic types of projects that you can join:

  • Subscription model. With this type, you don’t own the solar panels, but instead pay a subscription fee that entitiles you to a share of the electricity generated by the project. The size of your share depends on your subscription, which is sometimes sold in blocks. The maximum number of blocks you will be allowed to purchase is equal to 100% of your average annual electricity usage. A subscription model is by far the most common type of community solar project.
  • Purchase model. A few projects allow you to purchase your solar panels for the project. This means a larger upfront commitment, but as a result you will typically get a higher monthly payout. There are other parts of the infrastucture that you will probably not own, such as the racking and inverter systems. Be sure to read the contract to learn about these details.

Pros and cons of community solar

For some people, installing solar panels on their roof simply isn’t an option. However, some homeowners do have roofs that are suitable for solar, but wonder if community solar might be a better option than going through the hassle of installing solar panels on their roof. If you have the choice between community solar and your own solar installation, how do you choose?

To help with your decision making, here’s a comparison of community solar versus installing solar panels on your own roof. Keep in mind that if you are installing solar panels, there’s a big difference between owning the panels and using a lease or power purchase agreement. You can read more about this in our guide to solar financing. The list below refers to the pros and cons of customer-installed solar, regardless of the financing model used.

Customer-installed solarCommunity solar
Higher financial rate of return
(Customer-owned system) You keep incentives
Adds equity to your home
You control the project timeline
Requires a suitable roof
Long-term commitment
(Customer-owned system) Homeowner responsible for maintenance
(PPA or lease) Can be an issue when selling your home
Does not require a suitable roof
Does not require modifications to your home
No maintenance or repairs
Lower or no financial rate of return
Project uncertainty
Not available in every city
Can require long term contracts
Consumer protections vary by state

In the section below, we’ll better explain these points.

Community solar has a lower financial rate of return

Most of the time, community solar farms result in a lower financial rate of return for the customer. This is because most projects are profit-driven, and so a lot of the monetary value of the electricity that is generated goes to the company, rather than you. Sometimes, you may only break even financially, in which case the main benefit to the customer is having green energy.

Financial incentives go to the owner of the solar panels

The majority of community solar projects are a subscription model, which means that the customer effectively rents the solar panels rather than owning them. This means that the financial incentives, such as the federal tax credit, go to the company rather than you. (This is also usually true if you have solar panels installed on your home by using a PPA or lease.)

There are a few community solar projects where the customer owns the solar panels. In this case, you should be able to claim the tax credits, though possibly only for the panels, and not the rest of the hardware that is shared among the project, such as the racking, wiring, and inverters. Be sure to check the contract.

If you are looking for the highest rate of return, owning the system yourself is usually the way to go.

Project uncertainty with community solar

Community solar projects are large solar installations, often reaching several megawatts in size. This is a thousand times larger than a typical residential installation.

Because of the large scope, the planning and approval phase for these projects can take very long - multiple years, in some cases. In comparison, a residential project can take only a few months from start to finish.

Because of the large capital investment involved, companies will often start signing up subscribers while the project is still in the planning phase. This means that you could wait for years before the solar electricity starts flowing. Worse, your project may be denied approval, or run into other issues (such as financing falling through) and never be completed, leaving you hanging after potentially waiting for years.

Owner-installed projects also come with their own uncertainty, such as hiring the wrong contractor (although this risk is diminished if you use our service to get a solar quote), and power-purchase agreements can contain pitfalls. However, as the homeowner you’re in ultimate control of the project, and there is no chance that you’ll be waiting years for your home solar installation to be completed.

Community solar isn’t available everywhere

For a community solar project to be available to you, there are two things required: your state regulators have to allow this type of ownership mechanism, and there has to be a community solar project near you that is open to subscribers.

At the moment, there are about 43 states that have some form of community solar available, so it is allowed in the majority of states.

However, just because it’s allowed in your state doesn’t mean that there is a project with open subscriptions that are available. Many utilities run their own community solar programs, but only for their customers. If you’re a customer of a different utility, you won’t be able to join it. Instead, you’ll need to look for available projects from third-party developers.

Community solar is different from a green energy option

For many years, utility companies have offered a green energy option that allows customers to pay a small premium to specify that they want their electricity to originate from green energy sources.

The way this is supposed to work is that the utility company will use the proceeds collected from their green energy subscribers to purchase additional electricity from renewable sources, such as solar, wind, or biomass.

In many ways, this is similar to how community solar works, and if you don’t have community solar available, this could be a good alternative.

However, community solar does have one important advantage, which is that it is more certain to be additive green energy. When you sign up for community solar, your money is directly used to fund the development of a solar project. This means that when you invest in community solar, it’s more clear that your money is actually being used to add new sources of green power to the grid, and not just funding existing sources.

That said, participating in a green energy option on your bill does send a clear market signal that customers want clean energy, and can be a good choice if community solar and home solar aren’t available to you.

Checklist for community solar buyers

If you’re thinking of joining a community solar program, it’s important to do due diligence. This means reading your contract closely and asking questions if anything is unclear. Community solar is a relatively new consumer product, and it’s not well-regulated in many states. Don’t take claims about performance and financial payback at face value: be sure to dig into the numbers.

Here’s a list of some key things that you should understand in your contract before you sign.

  • Contract length. Your contract will have a duration, possibly as long as 25 years.
  • Early termination. If you have a long contract, you definitely want to know what happens if you want to exit early. Most of the time, there will be a termination penalty.
  • Upfront fee. Some contracts include an upfront fee payment or deposit. If the project is still in development, be sure to understand if this fee is refundable if the project fails to move to completion.
  • Payment model. What is the payment schedule? If there one large upfront payment for the project, what happens if you terminate early? If it’s a monthly payment, be sure to look for an escalator clause that increases the cost over time.
  • Compensation rate. What rate is the customer paid for electricity that is generated by the project? How does that compare to the retail rate of electricity?
  • Incentives and ownership. Be sure to understand who owns the solar equipment. If it’s one of the few projects where the customer owns equipment, clarify which federal, state, or local incentives the customer is eligible for.
  • Production guarantees. With community solar, you are purchasing a portion of the power generated by the project. It’s normal for solar production to fluctuate from year-to-year, but chronic underproduction could mean an issue with the project’s design. Be sure to understand if there is any kind of production guarantee.
  • Monitoring. With a home solar system, you will be able to monitor your power production in real-time. Find out if there’s anything similar available to subscribers of the solar farm.
  • What happens when you move? Especially if you have a longer contract and you’re a renter, there’s a good chance you’ll need to move at some point. Find out if the contract can follow you when you move, and if there’s any fee or penalty involved.
  • What does your monthly bill look like? Once you start, your monthly bill should list all fees and production from the community solar project. Be sure to understand what this looks like, and ask for a sample bill.

Benefits of community solar

If you care about green energy and saving money, the option that will generate the highest return for most people is owning their own photovoltaic systme. But for many people, adding solar panels to a roof they own isn’t an option.

If that’s the case for you, joining a community solar farm can be a great option. Read the links below for further advice on how to choose a project wisely.

Further reading

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