Community solar stakes claim in US power market

Community solar is taking an increasing slice of market share in the US. State-level programs and incentives fueled a record-breaking year of growth in 2020, accounting for 37% of annual non-residential solar capacity – up from just 13% in 2016.

As programs emerge and as the market matures, can the sector maintain growth?

Rachel Goldstein, an analyst with Wood Mackenzie’s US solar research team, said: “Community solar refers to local solar facilities shared by multiple community subscribers, such as homeowners, tenants and businesses that receive credits on their electricity bills for their share of the power produced. 

“The community solar market will experience a peak in installations over the next few years. As current incentives become fully allocated and those projects come online over the next two years, the market will see a decline starting in 2023 without an expansion of programs and incentives.”

According to Wood Mackenzie’s US community solar market outlook 2021, created in collaboration with the Coalition for Community Solar Access (CCSA), much of the growth over the next five years will come from new markets like New Jersey, Illinois, and Maine.

Goldstein said: “These state markets will account for 1,500 MW of direct current (MW_dc) in that timeframe. Market leaders New York and Massachusetts are projected to bring over 2,000 MW_dc online during the same time span.

“Meanwhile, without policy reforms that remove constraints on the market, mature markets like Colorado and Minnesota will shrink. Siting restrictions, interconnection challenges, and grid upgrade costs continue to suppress some state markets.”

Goldstein said that community solar programs are unique to each state. Historically, programs with less restrictive caps, simple siting allocation rules, and favorable compensation for the subscriber have been more successful. 

Goldstein said: “Ensuring that the customer will see a financial benefit to obtaining a subscription is key to a program’s success. Fair, stable rates that are easily communicable tend to result in more successful customer engagement, and clear compensation structures help to establish trust.

“Programs like that in Minnesota provide long-term certainty for customers due to a permanent value of solar tariff (VOST) that isn’t capped and experiences a slight average annual decline of 3%.

“On the other hand, states with temporary incentive programs typically see a surge of capacity additions that eventually drop off. Even when states with temporary programs establish successor programs, developers and advocates find that changes can lead to rate structure uncertainty, confusion for customers, and massive investments in time and resources to create favorable new programs.”

She said reasonable siting and zoning rules, along with clear processes for grid upgrades to enable interconnection, are also crucial for a successful market. 

Interconnection of community solar projects is often dependent on grid upgrades. For developers to bring projects to fruition, they need clarity on interconnection and upgrade requirements and costs.

Goldstein said: “Community solar is shaping up to become a more significant part of non-residential solar capacity over the next five years.

"As a unique market segment with a diverse customer base and varying state programs, recognizing best practices will be key to replicating successful models. There is considerable upside if programs and incentives are expanded.”