Community Solar Value Generation and Distribution

Abstract

Climate change mitigation efforts are taking place around the world, including efforts to decarbonize the electricity grid with renewable energy generation. In addition to small-scale rooftop and large-scale utility-scale solar, intermediate commercial-scale solar projects are gaining traction through an innovative business model known as community solar, in which residential customers pay a local solar project developer (via either an ongoing subscription fee or an upfront investment) for a share of solar capacity. The participating customers are compensated for the solar energy generated from their share of capacity by the utility, at a bill credit rate set by the regulator. The total cost of energy can be reduced if the bill credits are less than what the utility would otherwise pay for the conventional energy. In this paper, we study how the community solar business model generates value and how this value is distributed among all the players, using a model that endogenizes the adoption decisions of heterogeneous customers and the solar developer's pricing decisions in response to the bill credit rate. Our model captures the fundamental tradeoffs between the direct benefits of community solar participation and the indirect benefits from overall energy cost reduction, as well as between the solar developer's profit and the welfare improvement of the customers. Our analysis provides guidance to the policy makers on regulating community solar programs to achieve both high value generation and equitable value distribution.