“Like any other business venture, community solar projects need investors.” — Christie Young, environmental journalist at Solstice website
The climate provisions of the Inflation Reduction Act (IRA) include plenty of incentives for America’s homeowners to install renewable energy hardware their houses. As I pointed out in my last post, tax credits covering 30% of the cost of rooftop solar installations and generous direct credits that give consumers cash rebates to cover all or most of the cost of upgrading to a “smart” electrical panel, installing a heat pump and weatherizing are available.
But what about the 114 million Americans (35% of the population) who don’t own homes but live in one of country’s 44 million rental units? And what about those renters who struggle to pay their utility bills? Also, what of those millions of homes, regardless of ownership status, that are not suitable for solar panels because of poor solar orientation, shading, structural considerations or other factors? Are there provisions in the IRA to help them “go solar,” reducing their electric bills and emissions?
Here’s where the IRA’s “community solar” tax credits come in. But to understand how, we need to know what community solar is and how it works.
As its name implies, a community solar system is an array of solar panels — usually located on public or leased private land — owned by people living in a town or similar community setting such as tribal land. Ownership is procured by buying shares of the array, according to the means and interest level of each investor. Often those shares are represented as a number of solar panels, or portions thereof, owned.
For example, the Smith family buys three “solar panels,” but college student Susy Q, a renter who pays her own utility bills, buys half of one panel. The investors don’t actually own panels in the sense that they can take them with them if they move. They own the rights to the amount of electricity produced by the number of “panels” they have purchased. So, the Smiths get the power output equal to that of three panels, and Susy Q gets a half a panel’s worth. Since the entire community array is hooked to the grid, these individual or family investor’s returns in power generated are deducted from their monthly electric bill.
One of the virtues of community solar is its modularity — new capacity, that is, new panels, can be added to the array as more investors opt in. However, the systems take a certain amount of initial capital to build, far more than a handful of early individual investors can usually provide. That’s where the community solar incentives of the IRA come in.
Typically, the initial capital for a community array comes from private sector investors. There are specialized investment consortiums such as New York’s Distributed Sun (and many others) in the game, and even big banks such as Morgan Stanley are beginning to make substantial investments both to buff up their perceived environmental creds to earn modest but reliable profits. Their return on investment comes by taking a portion of revenue from energy bills paid by the community members invested in the system.
What the IRA does is raise and sustain the tax credits available for such investments, making them more profitable over a longer horizon. The credits, originally set at 30% in the federal Energy Policy Act of 2005, were being phased down to 10% before the IRA reupped them at 30% for most of the coming decade. The bill also allows the transfer of credits for related systems such as energy storage units. Furthermore, the tax incentives for building systems in low-income communities or on tribal lands are at least 40%, and can reach 50%, strongly encouraging increased solar access justice, AKA “solstice.”
Editor’s Note: A version of this article appeared previously in other publications as part of an ongoing series called “Your Ecological House,” written by Philip S. Wenz, the publisher of Firebird Journal.
Photo Note: This post’s photo shows an unusual project that is a direct political statement/protest and because the “community” that created it consists of national and international renewable energy and climate organizations, as well as the local community participants we usually associate with similar projects. Here’s the comment on Flickr’s Creative Common’s website posted by SolarXL, the organization that uploaded the photo.