The Benefits of Community Solar
By Thom Amdur
4 min read
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States across the country are increasing access to renewable energy sources through support for community solar projects, which create a unique opportunity for developers to reduce their utility costs while bypassing some of the challenges of installing a solar system as part of the property. The projects allow multiple customers to get a portion of the output from a central solar energy project. Each subscriber receives a credit for their share of the project’s output, which offsets their electric utility bills. This is typically achieved through virtual net metering, which allows utility customers to receive credit for energy generated off-site.
In early March, Oregon became the latest state to pass legislation allowing utilities and third parties to own or operate a community- based renewable energy project. It joined the ranks of 13 other states and the District of Columbia, which have enacted similar permanent or pilot programs.
“A lot of states have a specific carve-out for low-income families and include a state mandate for utilities to make them a priority,” explained Katie Leesman, an associate in Ballard Spahr’s Energy and Project Finance Group. However, Leesman cautions that every state’s approach to community solar programs is different and can vary in terms of the minimum number of subscribers for a project.
There was an influx of states passing legislation to support community solar programs in 2015, when the solar Investment Tax Credit was in danger of expiring. Fortunately, in December 2015, Congress enacted legislation to extend the ITC as a 30% credit through the end of 2019. The increased credit amount will then phase out over time until 2021, when it levels out at 10%. Leesman said that community solar project owners, who own a direct portion of the project, are entitled to receive the credit, but subscribers, who lease a portion of the project, are not. Most states require all of the owners and subscribers for a given project to be within the same electric company’s service territory.
Building Owner Benefits
As a part-owner or subscriber of the community solar project, multifamily affordable housing owners share or eliminate the upfront cost of building the solar infrastructure. Additionally, while a traditional solar model would require building owners to install solar panels onsite, community solar projects can be sited off-property. This way, buildings that are not set up for rooftop solar panels can still reap the benefits.
Affordable housing owners whose properties are master-metered have a clear incentive for pursuing lower cost alternatives for energy. Their operating costs go down in tandem with their utility costs, which increases a property’s cash flow. As an owner or subscriber, the owner of a master-metered property would directly benefit from receiving a credit on their utility bill through a community solar project.
Traditionally, the same benefits did not exist for tax credit properties where utilities were sub-metered – the property owner billed individual tenants for their usage – and tenant-metered – the utility company bills tenants directly. A split incentive existed, meaning an owner would need to expend the resources necessary to reduce utility costs, while the tenants would be the ones to experience those savings. Unlike market rate property owners, tax credit property owners cannot raise the rents to offset costs associated with efficiency improvements. Therefore, their only hope in recouping these costs is by lowering the tenants’ utility allowances, which will not affect the maximum gross grant or total tenant payment for that unit.
IRS Loosens Rules
The IRS began allowing Low-Income Housing Tax Credit owners to use an energy consumption model for tenant-metered properties. In 2012, it temporarily extended the same policy to sub-metered properties and this year, it made that change permanent. This means that the utility allowances can be adjusted to match actual tenant usage, rather than an estimate.
States with Shared Renewables Policies in Place:
California
Colorado
Connecticut
Delaware
District of Columbia
Hawaii
Maine
Maryland
Massachusetts
Minnesota
New Hampshire
New York
Oregon
Vermont
Washington
