FAQ: Community-owned solar

About Community Power

Why install a community solar power generation system?

Solar panels in a yellow field

A solar photovoltaic system capitalizes on the sun’s energy and replaces traditional fossil fuel-burning power, thereby offsetting the impact on our environment. In essence, a community solar system reduces an entire community’s carbon footprint. Members of the solar co-op profit from the investment, and the community profits from the endeavor.

What is a Community Solar Project?

A community solar project is usually a large solar garden with multiple investors who are often connected geographically. Depending on state laws and the goals and needs of the specific group, the garden can be hooked up directly to the utility, or it can be virtually net metered, or a host site can be utilized. However, not all community solar projects involve a common solar array. Some efforts have focused on dispersing information about available solar panel systems, and some are simply aiming to reduce the prices for individual ownership.

Which model produces more power, several individual home systems or one community solar garden?

A buying group, for instance, can negotiate a reduced module and installation cost for a group of people who will then individually finance and install solar on their homes– but the benefits are limited to the owners of the solar panels. We believe solar power can uplift an entire community. At Community Renewable Energy, we strive to maximize the neighborhood benefits of community solar projects, so we focus our efforts on community-centered approaches. With our industry connections, however, we can refer you to groups and 3rd party solar installers that will assist a buyer’s group.

Another one of those times the answer is: it depends. The size of the system and it’s geographic location will determine the power production more than anything. So, if you are comparing two options; buying a system for your home, or investing in a community solar project, and you’re trying to maximize energy production, you would look at the size of the community project and compare that to the size of your home system.

Rooftop systems are usually sized to fit the roof, rather than to fit the home’s energy needs and the average residential rooftop systems are between 2-4kW. Community solar projects are usually land mounted, so the size is a bit more flexible. An average community solar project that we implement would start out at around 50 kW, so in that scenario, you would need 12-25 homeowners to commit to installing individual systems on their homes to generate the same amount of renewable energy as a community project.

Goals of Community Solar (as determined by the US Department of Energy)

Overcomes barriers

  • Accesses federal tax incentives (30% tax credit and accelerated depreciation)
  • Eliminates difficulty in raising capital
  • Eliminates difficulty in sharing generated electricity among geographically dispersed owners

Inclusive

  • Includes renters and owners of shaded property, students, business owners, and community members who aren’t sure they will remain in the community for 25+ years (the lifetime of solar panels)
  • Allows these folks to actually own their share of the community project, rather than holding a license or lease

Affordable

  • Ensures the solar project cost the same or less than individual ownership and provide a  good return on investment
  • Disperses the economic benefits of solar power development broadening participation and more importantly ownership so that many and varied investors can benefit
  • Includes elements that encourage education and advocacy so that the community investment can help inform future generations

Replicable

  • Serves as a models for other communities around the country that are searching for a way to reach these very goals and challenges large energy users to reduce their carbon footprint

How do we model our community solar project?

There are three general models you can choose from for your community solar project:

  1. The 3rd Party model: a third party (like an installer or utility company) owns or operates a project that is open to voluntary participation.

  2. The Special Purpose Entity (SPE) model: individual investors join in an enterprise to develop a community solar project. (an example would be forming a cooperative or an LLC)

  3. Nonprofit “Buy a Brick” model: donors contribute to a community installation owned by a charitable non-profit corporation. (purely philanthropic)

For a thorough analysis of the different types of Community Solar and their benefits and challenges, we recommend reading A Guide to Community Solar: Utility, Private, Land on-Profit Development published through the US Department of Energy’s Solar for America Program.

What’s less expensive, a community project or individual systems?

Obviously we would need to compare the actual details of both proposals, size, cost, incentives, location, etc. But in general we have found that community projects are less expensive for the members, and provide a greater return, quicker payback, and more shared benefits for the neighborhood. Only a community model allows the opportunity of growth in the future, and the flexibility to invest based on your capability and interest, rather than your rooftop space.

Host

What benefit does the host site gain from solar power generation plant?

Through the power purchase agreement, the host gains a long-term source of renewable electricity at competitive rates, and participation in a community project intended to promote renewable energy and benefit the whole neighborhood.

What obligation does the host site have?

The principal obligation is to buy the solar array’s electricity before buying from other electricity suppliers.

Is the solar power generation site safe for the host?

Rooftop solar photovoltaic panels and the associated mounting racks are both relatively light. A feasibility study can assess whether a specific roof will have the load-bearing capacity required, appropriate amount of sunlight or any other direction limitations. A benefit of a rooftop system is the efficient use of space, however, where space is not at premium– a land mounted system can be more preferable. Analysis has shown that additional costs will accrue over the lifetime of a rooftop system due to inevitable need to repair the roof itself, and thus dismount and remount the system before and after roof repairs. While a user can easily roll those expected costs into their projected budget, where land availability and shade are not an issue, a land mounted system can be more cost-effective.

Will the host site remain connected to the utility company?

Yes.  The LLC plans to use a grid-tie design, which means that excess electricity generated during the day is sent out to the grid while at night the host site draws electricity back from the grid.  Ohio’s net metering rules mean the host only pays for the net electricity used.  Should more electricity be generated than used during a billing period, the excess electricity is carried forward as a credit.

System

How large an array is planned?

Solar Montage 4aThe size depends on the host site, but at Community Renewable Energy, our Community Solar Projects generally start around 50 kW. In addition to the host site’s available space, the array size will be set to match the host’s electricity usage and potential increased usage.  The ideal sizing would have the array’s yearly generation just match the host’s yearly electricity usage.

Which is better a rooftop system or a land mounted system?

Both. Or in other words, it depends. All things being equal the system on the roof will generate the same amount of electricity as the same system on the ground.

Very often, a rooftop system is preferable because it is more space efficient, and less shaded. In our very crowded world, land is usually at a premium, and rooftop spaces are both unshaded and excessively underused in the United States.

However, mounting that system on your roof does have some drawbacks. Your initial feasibility study will assess the load bearing capacity of your roof, most new roofs will be perfectly fine holding a solar power system, but some roofs might need some structural changes. And second, you will need to account for the average roof repair that inevitably occurs over its own lifetime. Your system will last 20+ years, but your roof will likely need some sort of repair in that time. Roof repair requires a dismount and re-mount of your system- which add some cost to your solar budget.

And finally, there are some circumstances where a land mounted system is most preferable– like where there is the possibility of expansion. An unused space with other potential energy users anytime from now until 25 years from now could mean increased consumption for your system, and potential growth of your system, and expansion for your Co-op (either additional investors or just additional investment). That growth would translate into an increase in profits and a decrease in your community’s carbon footprint!

But as you can see, there is no standard answer to that question. Each scenario will have a best fit.

Can you get sun in the Midwest? Isn’t that for the south and west coast?

The Midwest, Northwest, and Northeast are good climates for solar power generation, because solar panels still produce energy when it’s cloudy or snowy, though production peaks on the sunniest days. In fact, Germany (hardly known for its sunny climes) is breaking solar power records and leading the global shift to renewable energy. If you have unobstructed light from the south, east, or west, it doesn’t matter whether you’re in Ohio or California, you can still shrink your energy bill and carbon footprint with solar power.

Despite Ohio’s famous cold winter months, the state still gets a good deal of sunlight. It’s actually fairly comparable to our solar famous friends in Western Europe. Ohio’s annual daily average is about 3-4 kwh of solar energy per square meter.

Legal Structure

How do we structure this group? Are we a Cooperative or a business or a non-profit?

Over the past 30+ years, Community Renewable Energy principals have worked with groups running the full gambit of structures. We have ample experience in LLCs and Cooperatives, we’ve worked with the regulations, with the SEC, and with tax legislation. Based on our experience, research and analysis, we do lean towards LLC structures for Community Solar projects, but we are well equipped to help you and your members create a structure that best fits your goals and needs.

How does a Community Solar LLC function?

Community solar power: environmentally sound

A group of members combine funds to cover the installation of a solar power generation plant.  The LLC establishes the legal framework, the installation contract, a power purchase agreement (PPA) with the host, insurance, provision for long maintenance, and distribution of income from the solar power generation system.

Why do you recommend a for-profit LLC structure for a Community Solar project?

The LLC proves to be both the simplest and most flexible structure for a Community Solar Project. A Limited Liability Corporation offers a democratic management structure similar to a traditional cooperative, while also allowing the members more flexibility in the structure, and protecting the members’ profits. An LLC may be managed by the members as a group or by one or more managers determined by the members. In addition, membership can be expressed by percentage or by membership units that are similar to shares of stock in a corporation. Either way, that membership translates into shares of votes and profits.

The LLC serves as a pass through, rather than being taxed as a separate entity, which also protects members from being taxed more than once on any profits from the solar project. And finally, the members of an LLC are not personally liable for the LLC’s debts and liabilities. The LLC structure is relatively new– a product of the past 30 years or so, and thus having someone someone with knowledge and experience working with LLCs will be highly advantageous.

What’s the difference between an LLC and a Cooperative?

A traditional Cooperative structure is particularly attractive for community endeavors given its democratic and equitable nature. A Cooperative generally consists of its employees, consumers or a combination of the two. The members both manage and profit from its work. The Co-Op is taxed as a separate entity, and has a rather inflexible structure. They are often utilized in renewable energy projects abroad, but surprisingly have been used very seldom in the U.S. In fact as of 2011, the Department of Energy stated in a report that they knew of no renewable energy structures being run as a traditional Co-Op. That is often attributed to U.S. laws on incorporation and other tax legislation in regards to energy production.

Community solar gardenIt should be understood, however, that although a cooperative is often organized as non-capital stock corporations, it can, in fact, be an unincorporated association or business corporation like a general partnership or a Limited Liability Corporation (LLC). The two structures are not actually mutually exclusive. A cooperative isn’t necessarily an LLC, but it could be one.

For more about community solar power, check out our slideshow, Models and structures for community solar.

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