Community Solar

6 min read

It Doesn’t Have to Be On Your Roof For You to Benefit

When many Americans think “solar panels,” they still think of an individual array of panels that go on someone’s home. This means they see solar energy as a burdensome process that requires too much time, money and roof space to apply to them. But recently, solar energy has become much more scalable and democratic – via the “Community Solar” model. This has grown in tandem with government subsidies, and could be a good business opportunity for real estate developers or other environmental entrepreneurs who have familiarity with tax credits.

Community solar, according to the Solar Energy Industries Association, “Refers to local solar facilities shared by multiple community subscribers who receive credit on their electricity bills for their share of the power produced.” Provisions can come in multiple ways. Sometimes energy utilities have their own array, and lease or sell shares to customers, who receive credits on their energy bills for the electricity produced from their panels.

Other times individuals or businesses join to develop community solar themselves as a commercial enterprise. They build and operate the panels, transfer the energy to the utility, then work with the utility to allocate benefits to subscribers.

Community solar providers can leverage a variety of tax credits and subsidies. The investment tax credit, also known as the Federal Solar Tax Credit, will let providers of residential or commercial systems deduct 26 percent of installation costs from their federal taxes in 2020. That will dip to 22 percent in 2021, and end by 2022. Several state and local governments offer sales or property tax exemptions, or cash rebates, to households and businesses that install solar energy. And some states have Solar Renewable Energy Credits (SREC), which according to, function like this:

“Many utility companies must purchase a certain amount of SRECs each year to meet sustainability requirements set by their state’s Renewable Portfolio Standard (RPS) programs, and prove that a certain portion of their energy comes from clean, renewable sources. For every 1,000 kilowatt-hours (kWh) of electricity generated by the solar panels on your roof, you’ll earn one SREC, which you can later sell to your utility to earn additional income.”

Sunrun compares the concept to a stock market – “a SREC could be worth as much as $3,006, but since they’re sold on an open market, prices may fluctuate…the more demand for SRECs there is from utilities, the higher their price will be.” Jeffrey Lesk, co-founder and vice president of Washington, DC-based New Partners Community Solar (NPCS), compares SRECs to a cap-and-trade system. There are utilities around the nation and world that don’t meet the minimum clean energy criteria for their respective jurisdictions. Purchasing SRECs from companies that produce clean energy is a way that these so-called “dirty energy” companies can compensate for the pollution they cause.

Thanks to this market of subsidies and incentives—along with the growing public embrace of environmental sustainability—various private and nonprofit developers have benefitted from community solar. During a recent slideshow presentation at the Summer Institute, Jared Lang, assistant vice president for sustainability at the National Housing Trust, gave examples.

Jonathan Rose Companies, a for-profit developer that builds affordable multifamily projects nationwide, particularly in the Northeast, has been an owner and third-party tax credit investor for solar panels on eight projects. The developer sunk $250,000 into the $3 million net cost for the panels, helped along the way by a $750,000 solar tax credit equity investment. The firm’s net return over 15 years was $2 million, for a ten percent Internal Rate of Return (IRR). Silver Street Development Company, which also builds actively in the Northeast, has an 1,800 kilowatt array across eight properties. It has sunk $500,000 into this $5 million project, benefitting from $2.55 million in equity. The net return over six years has been $890,000 – a 30 percent IRR. University Park Solar is an example of a more humble—but still effective—community solar project. The company is a collection of residents in University Park, MD, who got their local church to host an array. The panels help lower the church’s energy bill, while the remaining generated energy is sold by the company to the regional utility for profit.

Perhaps most interesting is the use of community solar by nonprofits. One example is the aforementioned NPCS. It was co-founded by Lesk and Herb Stevens, two lawyers at the firm Nixon Peabody. NPCS’ mission is to build and manage solar arrays on rooftops across DC, which are then used to subsidize energy bills for the city’s low-income households. As Lesk described by phone, the concept works like this:

NPCS finds private businesses or landlords around DC that will donate their roof space for solar panels. The building owners get nothing in return, says Lesk, but often agree to this out of a commitment to environmental sustainability, social justice or the publicity that comes from having visible solar panels on their roofs. NPCS then raises institutional funding—namely from foundations and banks—to pay for the installation and management of the arrays on these roofs.

Tax credit equity becomes part of the dedicated revenue stream for NPCS to pay off those loans, since the panels generate energy for SRECs, which in DC are limited by regulation, meaning they sell for relatively high – $437.50 per share. The energy from the panels goes into the grid for the Potomac Electric Power Company, which serves much of greater Washington. In return, NPCS gets credits to be used to lower energy bills.

But rather than selling those credits to random customers on the open market—the commercial business model described above—NPCS uses them to reduce bills for DC’s low-income residents. The organization finds affordable housing developers or landlords who have large numbers of such tenants. The developers connect NPCS with the tenants, who get signed up for the discount. When the tenants’ energy bills come each month, there’s a line on the bill showing the savings they received as a result of NPCS’ work.

These for-profit and nonprofit models are just some examples of how community solar can be monetized, whether it’s being rolled out on farms, churches or the rooftops of tall buildings. Luckily for developers and other businesses, there are a variety of credits that make the initial installation of these panels easier and the ongoing management of them financially sustainable.

Story Contact:
Jeff Lesk
Co-founder and Vice President, New Partners Community Solar