Community Solar

These four states could make or break community solar growth

These four states could make or break community solar growth
(A community solar project in southern Minnesota. Credit: Clean Energy Resource Teams / Creative Commons)

Is community solar going to grow or contract over the next few years? That may largely depend on legislation in Ohio, Pennsylvania, Michigan, and Wisconsin, according to the latest report released by Wood Mackenzie in collaboration with the Coalition for Community Solar Access (CCSA).

7.3 gigawatts direct current (GWdc) of total new community solar installations are expected to come online in existing state markets by 2029 and cumulative national community solar installations will break 14 GWdc by 2029, per the report.

Short-term growth is supported by strong project pipelines in mature markets, but Wood Mackenzie and CCSA argue saturation will prevent those states from sustaining long-term industry growth. Wood Mackenzie forecasts the national community solar market to grow at an average rate of 5% annually through 2026 and then contract by 11%, on average, through 2029.

However, expanded program capacity and the establishment of new state markets could swing the trajectory of the industry’s growth, just like California’s recent community solar legislation did (in the bad direction).

“The US community solar market has tripled in size since 2020, but growth is beginning to slow in existing state markets,” said Caitlin Connolly, senior research analyst at Wood Mackenzie and lead author of the report. “Additionally, the May 2024 decision on California community solar resulted in a significant 14% reduction to Wood Mackenzie’s five-year national outlook. Without a major market entrant like California, long-term community solar growth will largely depend on the enactment of legislation to enable new state markets.”

In the report, Wood Mackenzie establishes a “base case” and extrapolates the effect of potential variables on the market. Under a bull case forecast scenario, Wood Mackenzie’s five-year outlook increases by 21% in existing markets compared to the base case. The bear case? A 20% decrease by the time we hit 2029.

However, alternative scenarios do not account for new state markets like Ohio, Pennsylvania, Michigan, and Wisconsin – which are “battleground” states by many definitions right now. Each of those states has garnered significant interest in community solar projects and has pre-development pipelines, including some major players like Microsoft and Starbucks.

Wood Mackenzie estimates that the enactment of proposed legislation in Ohio, Pennsylvania, Michigan, and Wisconsin and four additional potential state markets would result in an at least 17% uplift from the base case. If workable community solar legislation clears all new potential markets, the cumulative national outlook will reach 17.1 GWdc by 2029.

“The fruits of the Inflation Reduction Act are numerous but difficult to count on. Community solar stakeholders are navigating a steep learning curve while trying to secure tax credit adders,” notes Connolly. “In addition, awards from the $7 billion ‘Solar for All’ fund were announced in April 2024. Final implementation plans are not confirmed but developers hope to utilize federal funds to expand into new state markets even in the absence of official state programs.”

According to the report, 3.6 GWdc of community solar will serve low-to-moderate income (LMI) subscribers by 2029. As of Q1 2024, Wood Mackenzie estimates that 829 MWdc of community solar directly serves LMI subscribers. The share of community solar capacity serving LMI subscribers grew from 2% in H2 2022 to 12% in H1 2024. Given the availability of the LMI tax credit adder, Solar for All funding, and the evolution of state-level LMI requirements, the share of community solar dedicated to LMI subscribers will grow to nearly 25% by 2025.

“One of community solar’s defining and unique benefits is its ability to deliver meaningful bill savings to small businesses and working families who need it most,” said Jeff Cramer, CEO of CCSA. “Not only is the community solar industry delivering on that promise, but it’s doing so on pace with our goal to provide 4 GWdc of dedicated capacity to low-income residents by 2030. We’re also excited to see how Solar for All will positively impact our vision even faster than we had hoped.”

The top three subscriber management companies manage 56% of the total community solar subscribers and 71% of LMI subscribers. LMI subscribers remain the most costly to acquire with costs averaging $113 per kilowatt, 27% higher than the average cost to require non-LMI residential subscribers. Developers can save on costs by outsourcing subscriber acquisition and management to third-party companies, stated the report.