Ambitious clean energy goals are proliferating around the world to transition global reliance away from fossil fuels in favor of more sustainable resources like solar and wind. While renewable electricity growth is accelerating faster than ever, there is still a long road ahead in establishing a new energy economy — and it will require a mind-numbing number of renewable energy projects.
Electrifying the clean energy economy
Residential rooftop solar has been a major contributor behind the industry’s booming market growth, thanks in large part to alluring tax credits and incentives. But, installing solar one roof at a time is still a relatively slow play toward mass adoption. Plus, there’s no guarantee installations will continue to rise at an exponential rate. Changes to net-metering policies, like those in California that now reduce subsidies for homes with rooftop solar, and a new $100 interconnection fee in Georgia are two recent blows to residential solar now likely to deter some homeowners from making the investment.
Residential solar is also not possible for everyone. Factors like surrounding shade, home ownership and access to financing ultimately prevent many from being a candidate for rooftop solar.
Utility-scale solar projects are also making headway across the country, but these come with much longer lead times and a series of challenges that are difficult to overcome. Not only are utility-scale installations harder to approve, permits can take years to acquire and projects are typically subject to transmission and distribution (T&D) line upgrades. Again, while important to the nation’s overall clean energy objectives, counting on these types of projects to achieve a mass energy transition in any timely manner is destined for disappointment.
To truly electrify this economy in 10 years or less, we need to do more than take one step at a time with rooftop solar, and we need to move faster than utility-scale solar will allow.
Prioritizing the middle market
Focusing on moderate, medium-sized projects like community solar bridges the gap between residential and utility-scale solar to bring more megawatts of solar online, quickly and across both urban and non-urban sites.
The potential of this middle market has become increasingly apparent, especially at the federal level, with new community solar policies being implemented across the nation. In July 2022, the Biden Administration and the Department of Energy announced community solar pilot programs across five states and Washington D.C. to connect families with greater access to clean energy and lower electricity bills. The DOE’s target is to deploy enough community solar to power five million households by 2025. Even the Inflation Reduction Act heavily incentivizes community solar with a ten-year 30% ITC extension.
States are also establishing their own community solar programs. Similar to the renewable portfolio standards (RPS) 15 to 20 years ago that kickstarted utility solar, we are seeing the same pattern with community solar. By the end of 2021, 22 states plus Washington, D.C., implemented policies that combined community solar mandates, deployment incentives and policies that enabled easier deployment. Today, there is at least one community solar project in 39 states.
Then there’s the social equity angle accelerating community solar interest. As the nation strives for greater energy equity, community solar has the ability to connect more people than ever — particularly low-income populations and those who rent or live in apartments — with access to renewable energy.
A win-win for installers
This change in market prioritization spells good news for developers.
When it comes to project development, installing one larger-sized community solar project is worth more than five small rooftop projects, making community solar the path of least resistance in regards to developers’ time and resources. Rather than rolling a truck and crew out to multiple houses across town, working through inspection and commissioning for each house, community solar is one site, and one approval process, but with a much higher profit.
Since the permitting and approval process for installing a 5 MW system is similar to a 500 kW system, it also comes down to where installers want to spend their time and energy. It’s a no brainer that larger community solar projects offer greater business leverage. There’s even the chance for installers to co-locate community solar projects on commercial properties (a trend already heavily popularized in markets like New Jersey and soon to be California), further allowing installers to source a wider customer base.
Clean energy’s silver bullet
While empowering home and property owners to become individual contributors to the clean energy future is important, it’s equally important to recognize that relying solely on the homes with viable roof space and utility-dependent projects leaves a lot still on the table.
Positioning community solar as a silver bullet for decarbonizing the nation’s energy economy is the right move, and with so much opportunity at stake, a wide range of financiers and developers — many of whom are unfamiliar with the solar industry — are vying for available projects.
As we move into 2023, the success of community solar projects will require a great deal of collaboration between developers, financiers and property owners to ultimately optimize both the greatest return on investment for all parties as well as provide a streamlined process for electrifying a clean energy future en masse.
David Field is the CEO and co-founder of C&I financing company Luminia.