Consumer Guide to Community Solar
Community solar gardens have been growing in Minnesota over the past few years. As with any new program, there are a lot of questions consumers have revolving around how the programs work. This guide will cover the basics behind community solar gardens and go over the questions consumers should be asking when considering whether to participate.
What are community solar gardens?
Community solar gardens are an opportunity for electric customers to subscribe to a solar development to purchase solar energy for their homes or businesses. Community solar gardens are a lot like community gardens, but instead of growing fruits and vegetables, you are producing solar power. Solar gardens allow you to subscribe to solar panels that are a part of a greater solar development. Community solar garden developers build centrally located solar arrays that vary by size. The arrays produce energy, and you purchase a share in the garden equivalent to the amount of energy you want for your home.
Basically anyone! But, community solar is a particularly good option for those who want to support solar but do not have access to solar on their own properties. This could include renters, people whose properties are unable to support solar panels for various reasons, or others who do not want to install their own solar panels.
Solar garden options vary depending on the utility that provides electric service in your area. Thanks to a 2013 law, Xcel Energy customers can subscribe to gardens offered by private companies, called developers, as long as the garden is in their county or the county adjacent to their property. Minnesota Power offers a small solar garden program directly to its customers, as do many cooperative and municipal utilities around the state. Check out the Clean Energy Resource Teams’ website that shows all the community solar gardens offered in Minnesota.
How does it work?
Each solar garden works a little bit differently. If you are an Xcel Energy customer, you can subscribe to a solar garden through private developers. Customers of many other electric utilities can subscribe directly through their utility.
Subscribers either pay an upfront payment per panel or a payment based on the number of kilowatt-hours (kWh) that are produced. Typically, they receive a credit on their electric utility bill for the solar energy that is produced by the solar panels they subscribe to.
Part of a subscriber’s utility bill credit includes the cost of the fuel that would have otherwise been used to supply their electricity. Unlike coal- or natural gas-fired power plants, solar energy requires no fuel. Fuel costs that customers pay typically vary from month to month as the price of coal and natural gas goes up and down. With solar, on the other hand, the price is set from day one.
Community solar gardens often require a long-term contract (20-25 years), so this is a potential opportunity for individuals to hedge against rising fuel and electric prices and potentially save money, as the rate you pay is typically locked in for the term of the contract. However, you should also think about whether you might move or your circumstances might change when considering signing a long-term contract.
Will I save money over the lifetime of my contract?
Maybe. Whether you will save money in the end, or end up paying a little bit extra, depends on your utility, how much you’re charged and what the method of payment is for your subscription, and how much electric rates increase over the course of your subscription.
It’s a fair bet that electric rates will increase, however no one can predict how much or how quickly. Electricity rates have increased about 3.5 percent each year since 2000. As you’re considering community solar options, take a look at the predictions the developers or utilities are making about increasing electric rates. (Read on for more information on how electric rates have increased in recent years.)
The main methods of payment are an upfront fee, payment per electricity production, or some combination of the two.
Some community solar gardens charge an upfront fee that guarantees a customer’s subscription to the solar panels for the length of the contract.
There are a couple different methods that community solar gardens offer for customers to pay based on the solar electric production (per kWh). Some gardens charge subscriptions rate that is tied to customers’ “applicable retail rate” of electricity (the rate the utility charges customers for their electricity use), guaranteeing a set level of savings over the course of your 25-year subscription. This could mean the rate you pay to subscribe to the solar garden will always be slightly lower than the rate your utility charges for electricity, regardless of how the electricity rate changes over time.
Other gardens charge a solar subscription rate and set an escalation rate that will be locked in for the terms of your contract. This guarantees what you will pay for solar. In other words, a developer might charge $0.14 per kWh produced today, and that might increase by 2.75% per year over the course of the 20- or 25-year contract. With this option, if the rate the utility charges for electricity increases at 3.5 percent per year, as expected, you will be saving more money later in your contract as your subscription payments will only increase by 2.5 percent per year. But, if the rate your utility charges for electricity increases at a slower pace, it will limit the amount of money you can save. Ideally, the escalation rate of your subscription to the garden should grow at a slower pace than the rate you pay for electricity, and your monthly savings should grow over the course of your subscription as well. The average growth rate for electricity prices has been 3.5 percent a year since 2000. Even though you cannot guarantee electricity prices will continue to grow at this pace, it is a good benchmark. Take a careful look at the escalation rates built into the contracts of community solar gardens you are considering.
If I subscribe to a solar garden, am I getting solar energy?
The answer to this question is more complicated than it seems.
If you subscribe to a solar garden, even though may you own the electricity production of a couple of solar panels, it’s impossible to track how electrons actually flow around the power lines. Instead, solar energy generation is tracked by solar renewable energy credits, or SRECs. Each SREC represents one megawatt-hour of solar energy generation.
SRECs can be bought and sold. Utilities can use them to meet the state law requiring 1.5% of electricity to come from solar by 2020. Individual, governmental, or commercial customers can use them to source a portion or all of their electricity use from solar energy. In order to make sure solar energy isn’t being double counted, there are organizations that track these credits, and make sure they are retired as they are used.
So does your solar garden subscription mean you’re getting solar energy? That depends what happens to the SRECs generated by your solar garden.
With some community solar gardens, the local utilities automatically gain ownership of the SRECs that are produced by a community solar garden. If the solar garden is built by a third party, where the SREC goes may vary.
If an SREC is not owned by the subscriber, a subscriber cannot claim their home is powered by solar. But, a subscriber can say they are a part of a community solar garden and contribute to increasing solar development in Minnesota.
If you want to be sure you can claim to be solar-powered, ask what happens to the SRECs in each solar garden you are considering. You can also consider different renewable energy options.
Questions to ask if you’re considering a community solar garden subscription
When you participate in a solar garden, you are usually required to sign a contract. It’s important to make sure you are comfortable with the terms of the contract and understand the potential risks and rewards. Below are some key questions to ask as you are evaluating your options.
- Is this developer reputable?
- Is the developer likely to be in business for the length of the contract?
- What are the contract terms?
- What fees are there?
- If I am paying my subscription on a per-kWh basis, what is the escalation rate of that cost?
- At what rate does the solar garden developer assume electricity costs will increase when they calculate how much I will save over the life of the contract?
- Am I planning on living in this county or an adjacent county for 25 years?
- If I want or need to get out of the contract, what are my options and am I okay with the potential costs of those exit options?
The Clean Energy Resource Teams offers excellent and detailed resources for people considering subscriptions, including tools to help decide whether the solar garden will save you money, and a subscriber agreement disclosure checklist.
How to apply?
Xcel Energy customers apply through the private solar garden developers. Customers of other utilities can apply directly with their utility. You may wish to check your utility’s website for a list of all developments and the status of the projects within their territories.
If you are an Xcel Energy customer who receives energy assistance for electricity, you should be aware that participation in a community solar garden may reduce the amount of assistance available to your household. The amount of money you pay a utility is part of the criteria in determining how much assistance you can receive. As a community solar garden subscriber, you pay for your subscription and receive a credit on your electric bill. Because energy production from a community solar garden will lower the amount you pay to the utility, under current practices you are eligible for less assistance.