Community Solar Explained: Ultimate Guide to How Community Solar Works

If you’re like many Americans, a big part of your carbon footprint comes from the electricity used in your home. As CNBC reports, only around 40% of the U.S. electric grid is powered by clean energy sources. The other 60% comes from dirty fossil fuels that contribute to climate change and all sorts of pollution.

One way to replace dirty power in your home is to install a home solar array. However, this isn’t an option for everyone. Some people don’t own their homes. Some don’t have a sunny spot to put the panels in. And some just can’t afford the upfront costs.

Fortunately, there’s another way to get the environmental and cost-saving benefits of solar energy without using your own roof. It’s called community solar.

Perch Energy is helping bring the benefits of solar power to people who can’t install their own solar panels. By subscribing to a community solar project, you help clean up the power grid and save money on your electric bills, too.

In fact, annual savings on your electricity cost could be between 5%-15% depending on the project, where you live, and your average energy usage.

What is community solar?

Under a community solar program, local residents all share the output of a single large solar installation, called a solar farm. You can subscribe to a local solar farm and begin earning solar energy credits from your utility company that reduce your electricity costs.

Community solar takes advantage of state renewable energy incentives to help homeowners, renters, and businesses save money while also supporting solar power in their communities. 

For those who aren’t able to install rooftop installations on their own homes—due to the upfront cost, roof constraints, or you don’t own your home—community solar programs offer a way to participate in the renewable energy revolution and save money.

Residents can subscribe to a local solar farm that has been developed specifically for community solar and begin earning solar energy credits that reduce your electricity costs.

Under a community solar program, local residents all share the output of a single large solar installation. These large systems generate enough energy to power hundreds or even thousands of homes. (Though you’re not actually getting direct solar power into your home, you’re helping put that solar power onto the overall grid.)

The technical name for this type of installation is a photovoltaic power station. However, most community solar projects go by less formal, friendlier-sounding names, such as:

• Solar power plant
• Solar farm
• Solar garden
• Solar park
• Roofless solar
• Shared solar

These terms are all used more or less interchangeably to refer to the same thing: a big array of solar panels that supplies power to a given area.

Solar farms can go on a variety of sites. Some of them are literal farms with unused space. Capped landfills and abandoned industrial sites can also supply open space for solar gardens. But they don’t always have to be in the middle of a big open field. In some cities, solar arrays on public buildings, such as parking garages, serve as shared solar systems. All of these setups could be considered a form of community solar.

How does community solar work?

Community solar allows you to enjoy the benefits of solar power without installing rooftop panels. Local solar farms pump clean energy into the grid; residents and businesses can subscribe to a farm and get credited for a share of the power it produces. These credits, enabled by government incentives, are received as a discount on your own electricity costs—like a reward for helping the environment.

A community solar project can be started or owned by a utility, a nonprofit, or a “special-purpose” entity, meaning a company created specifically for the purpose of building and owning a solar farm.

The owner will work with solar developers to first identify a suitable site, get the right permits, and start construction. The build process can take many months.

The owner then hires a company like Perch. We work on behalf of the solar farm owner to find subscribers (like you!) and manage their whole experience for the duration of their project subscription.

Once a solar farm is completed, it’s connected to a local utility and begins sending solar energy to that utility’s power grid. An electric meter keeps track of the farm’s energy production which the utility then translates into a monetary value, often referred to as a “solar credit.” These credits are what your community solar subscription will generate every month, and they are what ultimately offset the cost of electricity on your own utility bill.

You will still pay your same utility company for electricity. Subscribing to community solar does not change your utility or your electricity supply, because you’re not receiving the solar farm’s power directly. But you are getting a lower bill thanks to the credits!

Think of it as a reward for doing good by the environment. You’re helping support solar energy in your state and aiding the transition to a cleaner and more stable electric grid for everyone. In return, your state gives you a discount on your own energy cost.

To be clear, with a community solar subscription, you don’t own any portion of the farm or its panels yourself. But you receive a share of the credits it generates based on its clean energy production.

How does your community solar subscription save you money?

The solar credits you receive are available thanks to your state-legislated renewable energy incentive program. Your local government enables project owners to share the benefits by discounting your electricity cost. 

If you’re subscribed to a project, you continue to receive your electricity through your local utility. However, the utility gives you solar credits on your electric bills based on the size of your share in the solar farm.

About the "size of your share in the solar farm." When you subscribe to a community solar project with Perch, we first analyze your typical annual electricity usage so we can understand how many solar credits you’ll require in order to offset as much of your electricity cost as possible. Our goal is to maximize your savings.

The solar credits are available thanks to your local government—specifically your state-legislated renewable energy incentive program. Your state government enables project owners to share the benefits by discounting your electricity cost as a reward to you for supporting solar power generation in your community. And because the solar farm is connected to the utility company, the credits are efficiently applied right on your existing bill.

Understanding community solar billing

Community solar is still a fairly new concept to the clean energy industry, and thus, not every state implements it in the same exact way. One inconsistency is with billing.

As you know now, subscribing to community solar means you can save on your electricity cost—programs are designed explicitly to bring you annual savings, so long as you remain on your subscription. However, not every month will look the same.

New York and Illinois only: Utility Consolidated Billing (UCB)—the same utility bill you’re already getting

In New York and Illinois, there is what’s called Utility Consolidated Billing (UCB). This means that, as a community solar subscriber, you simply receive your regular utility bill and it’ll just have an additional section or line item showcasing your solar farm credits and how much they’re offsetting your cost.

Note that while community solar will lower your electricity cost on an annual basis, the exact amount of discount on each bill can differ month by month based on how much energy your farm produces that month. Due to seasonality, your farm generates different levels of energy each month (i.e. summer months are much sunnier, so the farm generates more solar power than in winter months).

UCB is the preferred method within the industry and for you, the subscriber. That’s because you don’t need to do anything differently. Its one-bill model is seamless and efficient.

New York and Illinois are currently the only states that have UCB billing models. But UCB is picking up steam in many states and hopefully will become widely adopted soon.

All other states: Non-Utility Consolidated Billing (two bills—your existing utility bill and a Perch bill)

Unfortunately, due to various regulatory reasons, every other U.S. state that has community solar has not yet implemented UCB.

Instead, there exists a two-bill process. Rest assured you’ll still save! There is just an extra step each month.

Non-Utility Consolidated Billing works like this:

• Each month, Perch will send you a bill for your portion of credits based on your solar farm’s energy generation.
• You’re paying Perch for these credits, but thanks to the government and state incentives, we charge you for them at a discounted rate.

For example, if your subscription produces $100 worth of solar credits per month, Perch bills you $90. However, your utility then reduces your electric bill by the full $100—since that’s what your subscription portion generated—saving you $10 each month.

How seasonality affects your community solar credit billing

It is possible that in a given month your Perch bill will be higher than the credits you receive. This is due to the seasonal factors of energy generation of solar farms. During sunny summer months, your farm’s generating a ton of credits—potentially more than you actually need to offset your own electricity bill that month. But the excess credits are saved for you, and then utilized once the colder months arrive to make up for the fact that the solar farm is generating less, due to fewer sunny days.

The video below explains how seasonality affects your credit billing. But no matter what, the whole program is designed to deliver savings on an annual basis, so long as you remain on your subscription.

What are all the benefits of community solar?

Community solar makes it possible for more people to directly benefit from solar power—and enjoy the kickbacks from state renewable energy incentives. Consumers (or businesses, non-profits, institutions, municipal buildings and more) get lower energy bills, and utilities get a stronger, more resilient power grid. And everyone in the community gains the climate and health benefits of cleaner energy.

But community solar's benefits don’t stop there.

1. Community solar is accessible to more people than other clean energy solutions like rooftop solar

Only about one in four Americans has the option to install a rooftop solar system. Some people can’t because they’re renters or live in shared housing. Others don’t have a big enough or sunny enough roof. And many can’t afford solar or simply don’t want to spend the upfront cost of installing a rooftop solar array.

Also, some people are barred from installing solar panels by restrictive homeowners’ association (HOA) rules. In some states, like New Jersey and Virginia, HOAs aren’t allowed to block solar installations. But this isn’t the case everywhere.

Community solar, on the other hand, is available to anyone within range of a solar farm (subject to certain eligibility requirements).

Community solar allows more people to dually benefit—you save money on electricity while also contributing to renewable energy generation and fighting global warming without any extra effort.

2. Community solar saves you money

Community solar isn’t the only way to get clean energy at home. In U.S. states with a deregulated energy market, you can switch your electricity supplier to one that produces power from renewable sources. But while solar and wind energy are getting cheaper to produce, they’re not always cheap to buy directly. In some cases, you might pay a little extra for green power. (It’s like buying a non-organic apple vs. an organic one—you expect to pay more for organic because it’s better for you.)

With community solar, by contrast, you’ll always come out saving on an annual basis.

3. Community solar is free to join with no upfront costs

According to SolarReviews, the average cost of a 6 kW home solar setup is around $12,000—and that's after the tax credit. That’s likely more than many homeowners can afford, even for a system that saves them money in the long run. And while financing is available, it increases the overall cost of the system. Plus, it locks you into a loan that can last 10+ years.

Community solar gives you the benefits of clean solar power without that upfront cost. You also don’t have to deal with the hassle of getting your solar panels installed. And instead of a decades-long loan, you have a flexible contract.

Better still, if you move to a new home in the same area, you can take your community solar subscription with you. You don’t need to leave your solar panels behind and get a whole new set installed on your new home.

4. Your community solar subscription helps the environment and fights global warming

By bringing new solar power production online, community solar helps clean up our electric grid. Replacing dirty fossil fuels with clean energy from wind and sun has huge environmental benefits. It reduces a wide variety of harms, including:

• Carbon emissions that contribute to climate change and ocean acidification
• Other harmful air pollutants, such as particulates and nitrogen oxides
• Fossil fuel mines that damage or destroy wildlife habitat
• Runoff from mines that pollutes waterways

In fact, according to the EPA emissions calculator, a standard 5MW solar project avoids the CO2 emissions of burning 5 million pounds of coal—that’s the equivalent of taking over 950 cars off the road every year!

Each new solar farm helps keep our energy generation clean and our land, air, and water cleaner.

5. Solar farms directly support communities through job creation and energy independence

When you switch to a green energy supplier, you’re giving your money to a supplier that’s sourcing their electricity from an existing clean energy source—like a solar or wind farm (still awesome for supporting clean energy and lowering your footprint). But you’re not necessarily helping to get ones built.

But with community solar, you’re actually helping a new solar project come into being. And the more subscribers like you that join community solar, the higher demand goes, and the more solar farms that get built. Building new farms, and maintaining existing ones, creates high-quality jobs right in your community for your friends and neighbors.

Having a local solar farm also helps your area become energy independent. When electricity is produced locally, the grid is less dependent on big power plants. This can help minimize power outages and make the grid more resilient.

6. Solar farms stabilize the energy supply—good for you and the utilities

Having power generation spread out across smaller facilities, like solar farms, can be a good thing for utilities too. They can site roofless solar projects in areas that need power the most. That helps keep the grid running smoothly, so the utility spends less on maintenance and repairs.

As a bonus, the utility gets to count the solar farm as a renewable energy source in its service area. This helps them meet Renewable Portfolio Standards (RPS). These are requirements in certain states for a certain percentage of electricity to come from renewable sources.

7. Shared solar promotes energy equity

Historically, dirty fossil fuel plants have most often been built in disadvantaged communities. These communities have average lower incomes and, typically, more people of color. Because they’re closer to the plants, they suffer the most health effects from pollution. By contrast, clean energy projects historically have been more likely to go in higher-income areas.

Community solar can change that. Low-income and people of color can take control of their own energy future and bring solar power to their neighborhoods. And they benefit directly from the cleaner air and lower energy bills it provides.

Aside from residents, who can benefit from community solar?

The beauty of community solar is that it’s for anyone and everyone. As long as you pay an electricity bill and are eligible, you could benefit from joining a community solar subscription.

In addition to renters and homeowners, those that can benefit from community solar include:

• Businesses and franchises: Customers expect you to be environmentally conscious. Now you can, while improving your bottom line, too.
• Universities and hospitals: Use your community solar savings to better serve those who really matter.
• Religious orgs and non-profits: You’re giving so much to your community. Get something back in the form of energy cost savings.
• Large commercial and industrial: The higher your energy bill, the more potential savings you could get from community solar.
• Municipalities and civic buildings: Subscribe to community solar and reinvest the savings into local areas of need.

What’s the catch with community solar?

With community solar, there's really no catch. There are no upfront costs. You don’t need to install anything on your home. It’s available to people who can’t install their own rooftop solar panels. And it saves you money on your bill.

Many Americans are still skeptical about solar power—particularly its cost. Even though solar power is now one of the cheapest ways to produce electricity, people often assume it will cost them more. Or at least, they think they’ll have to pay more up front to get its benefits over the long term.

But with community solar, there really is no catch. There are no upfront costs. You don’t need to install anything on your home. It’s available to people who can’t install their own rooftop solar panels (so long as you’re eligible and there’s a solar farm in your area). And it saves you money on your bill.

So, joining a community solar program is really a no brainer. There’s only one problem: not everyone has this option.

One reason is eligibility. Some solar farms require credit checks, shutting out people with poor credit or no credit (though that’s becoming less common). And others don’t allow big businesses to participate. The good news is there has been progress to solve some of these eligibility roadblocks so that community solar becomes even more inclusive and can be enjoyed by more people.

The biggest problem, though, is that community solar isn’t available everywhere yet. As of 2022, community solar projects exist in 41 out of 50 states (with at least one community solar project live). However, only 22 states actively support this type of program. About 72% of shared solar projects are concentrated in just four states: Minnesota, Florida, Massachusetts, and New York. Maine's community solar program has existed since 2011 but hit some initial delays. This is all changing fast, as New Mexico, Maryland, Illinois, New Jersey, Washington DC, Delaware, Hawaii and other states all have community solar pilot programs in place or legislation in the works to approve community solar programs.

Why community solar is worthwhile

Community solar delivers the benefits of solar power to everyone in a community: renters, owners, local businesses, institutions, non-profits, municipal buildings and really anyone with an electricity bill. It saves you money, helps the environment, and strengthens the grid. It’s a triple win for everyone.

The only real downside is lack of availability. Fortunately, this is changing. As more shared solar plants get built and more customers enjoy the lower rates they provide, demand for this service will increase. This, in turn, will lower the cost to build new projects, setting off a virtuous cycle that will build on itself.

The beauty of community solar is that it brings together so many groups that all stand to benefit.

The utility gets closer to its renewable energy target and gets to manage a more efficient grid. Towns and cities boost their economy by creating jobs and reducing reliance on dirty fuel sources. Businesses signing up as subscribers can support renewables and their bottom line. Homeowners and renters have a simple way to support and participate in the renewable energy transition while saving money on their bill.

The more each group buys in, the more comfortable each will become with this exciting new model and the greater benefit for everyone.

In fact, this is already starting to happen. At the end of 2019, there were 2 gigawatts’ worth of community solar installed across the U.S. By the end of 2020, that had grown to more than 3.2 gigawatts, and in the next five years that’s projected to jump to 4.5 gigawatts. If community solar continues to grow at anything like that rate, it will be a major player in our renewable energy future.

Ready to join a community solar program? Perch can help >