Solar energy is catching on across the US.
Not everyone can — or wants to — install solar on their rooftops, but they may still want to reap the benefits of using solar power.
Some utility companies set up large-scale solar farms designed to provide electricity to many households.
But another model is also starting to pop up around the country: the community solar farm.
At the end of 2020, 39 states and Washington, DC, had community solar farms, and 22 states and DC had already established policies that encouraged development.
Farmers and ranchers can use the community solar energy movement to supply their energy and for extra cash.
With the fluctuations in energy prices and farming and ranching markets, who wouldn’t want to find a way to cut operating costs and boost income?
We’re going to fill you in on what community solar is and tell you how they get developed so that you can decide whether it’s right for you.
Getting the Low-Down on What a Community Solar Farm Is
When most people think of solar energy, a solar array on residential and business roofs around the country typically comes to mind.
Even though this is standard for individual households, although it isn’t the only option.
A solar farm offers households — including renters — and businesses a way to access solar power without putting panels on their roofs or property.
The Facility Structure
A shared solar facility is constructed in a single location.
Yet, community members who participate in the program receive the energy.
A community solar farm supplies less than 5 megawatts of power, though most provide 1 megawatt or less.
A 1-megawatt facility can supply approximately 160 average-sized homes with electricity, and a 5-megawatt farm can service at least 800 homes to get an idea of how much power these farms provide.
This arrangement is potentially up to 15% more efficient than many rooftop solar systems.
These facilities are generally established on land leased from an individual, business, or entity.
When built well, the land can be returned to its pre-solar farm state, making it attractive for farmers or landowners to partner with solar facility developers.
The Organizational Arrangement
Although a community solar farm is a small-scale facility, there are three different organizational models.
The three models vary in who finances the project — from planning and construction to operation — and who benefits from it.
Benefits go beyond receiving solar energy, though that is certainly one of them.
Other benefits include tax incentives and any profits from selling produced electricity.
With the utility-sponsored model, the utility company or a third party owns the solar farm (but not the land if they are leasing it from a landowner).
The utility comes up with the financing, usually through grants and their customers’ money for electricity.
The participants in the community solar farm are utility customers who opt into the program.
In most parts of the country, utility companies are taking the lead in developing solar farms.
These entities have the financial and legal structures already in place to take on this type of project.
They are also often publicly owned and respond to customer demands for alternative energy.
Special Purpose Entity
The second most common model is the special purpose entity (SPE) operational arrangement.
In this model, community investors come together to form a business for the solar project.
These investors finance the project, though they may also seek out grants and other incentives.
A third party often operates the community solar farm.
An SPE is a business with all of the legal and financial obligations of a business.
Although this is the second most common organizational type, SPEs don’t always possess the infrastructure to create a renewable energy facility’s legal, regulatory, and financial components.
It can take much longer for projects developed under this model to get started.
Also, SPE members must navigate complex arrangements between a third-party host, the utility company, and the participants, as well as any regulatory hurdles.
This last structure isn’t a typical community solar farm, but non-profits can benefit a community.
In this arrangement, an organization or group of donors provides financing to create a small-scale solar facility.
The donors themselves don’t participate in the solar program but provide a way for others who wouldn’t otherwise receive renewable energy.
To date, churches or schools have benefited from this model.
However, it can expand applications and increase access for low- and fixed-income communities.
Donors would purchase the solar equipment for the community solar farm and give it to the community.
Residents would then have access to reliable, clean energy at little or no cost, and the donors receive a tax write-off.
Community members gain access to solar energy in two ways: 1) ownership and 2) subscription.
The ownership models closely align with residential rooftop solar.
With this arrangement, solar program participants buy into the program.
They “purchase” the solar panels or kilowatts of electricity they need to power their homes.
Residents can only purchase the amount they need to power their homes, so they can’t buy more than necessary and then turn around and sell it for a profit.
The electricity the panels produce, or the members’ shares of the total electricity generated on the farm, shows up as a credit on their power bills.
The subscription model doesn’t require the up-front investment seen in ownership models.
This structure grants wider access to solar energy, as they don’t have to foot a hefty bill to reap the benefits of the community solar farm.
There is no set arrangement for these programs, but they typically allow community members to opt-in at a low monthly subscription rate.
Once signed up, residents immediately gain access to solar energy.
As with the ownership models, solar power shows up as a credit on the monthly electricity bill.
The Benefit Models
With rooftop solar, the solar panels are connected to the residence.
Shared solar doesn’t function this way, so benefit allocations work differently.
Here are the three distribution methods for a community solar farm are:
- Virtual net metering
- Group billing
- Joint ownership
Virtual Net Metering
Virtual net metering works similarly to net metering for rooftop solar.
Each month, the solar array’s production is calculated and distributed among program participants.
This generates a credit on participants’ electricity bills just as they would with the net metering systems for rooftop solar.
If a residence uses less electricity than produced, the credit carries over when electricity usage exceeds the solar energy produced.
However, utility companies may cap the carry-over amount.
Group billing works similarly to virtual net metering, except an intermediary determines how to allocate the solar power benefits.
This structure functions the same way standard utilities do in the master-metering programs you see in commercial or multi-family residential structures.
Instead of the credits going toward individual resident bills, the utility company credits them to the group’s account.
Community solar farm program organizers then determine allocation arrangements and distribute benefits.
The final benefits model is a joint ownership program.
With this structure, program participants are part owners of the solar farm.
Certain states have implemented the joint ownership model in varying formats.
It’s an attempt to broaden individual community programs’ reach while they function similarly to a wholesale renewable energy program.
Participants receive benefits in the form of electricity, but some programs also sell off any excess energy produced and pay participants their share of the sales.
How a Community Solar Farm Is Developed
The first aspect of developing a community solar farm is all about location.
There must be high enough local and regional interest in solar must be adequate for a developer to invest in a solar project.
Often, the entity operating the solar facility knows the demand is there and actively seeks to create a community-scale solar array to provide renewable energy to residents.
Once the solar developer identifies the market demand, they then locate the site facility.
This is where your land might come into play.
What the Developer Wants
The developer needs enough land to establish the community solar farm, and it must have suitable properties.
Typically, they need anywhere from 5 to 50 acres.
They also seek land that has the following features:
- The ground is stable and relatively level
- The land doesn’t require much clearing
- The site isn’t on a floodplain or wetlands
- The parcel is close to a substation
- The land is near distribution lines
- The site is free of shading throughout the day
The more appropriate the land is for a community solar farm, the less the developer must invest in starting the project.
If you can check off all these boxes, your land may be a good fit for a facility site.
The Landowner’s Role
Usually, the landowner leases a plot of land to the developer for the project.
When farmers or ranchers have marginally productive land, they can take it out of production and still earn money by leasing it out to a solar developer.
Leases typically last for 30 years, which is the standard life expectancy for a community solar farm.
Some landowners choose to sell the parcel to the developer, but that happens far less often than leasing.
As the lessor, you still own the land.
The role you play depends on the terms you agree upon in the lease.
You can negotiate arrangement parameters before the lease is finalized.
It’s also essential to review the lease before signing it.
The lease should spell out:
- Who gets the tax benefits from the solar project?
- Who is responsible for paying the taxes on the land?
- Who is responsible for maintaining around the community solar farm grounds?
- Who takes care of the cleanup when the project ends?
In some instances, when the ground is still productive, farmers and ranchers can use the land under the solar panels for their own purposes.
For instance, you may be able to plant specialty crops that are hand-picked, such as tomatoes, peppers, or herbs, around solar panels.
Ranchers may have sheep graze in the area, as they’re good for maintaining the field and won’t damage the panels.
Of course, these types of arrangements need to be defined in the lease agreement.
Getting Answers to Your Community Solar Farm Questions
Taking steps to start a community solar farm on your farm or ranch is a big decision, and we understand that you may have more questions about it.
We at Unbound Solar® are here to help.
We’re passionate about solar energy, but we also want to help you make informed decisions.
Get in touch with us today!
We’re happy to provide more information about community solar farms or solar energy in general.