NREL is a national laboratory of the U.S. Department of Energy, 

Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Low-Income Community Solar: 

Utility Return Considerations 

for Electric Cooperatives

Douglas Gagne, Alexandra Aznar

The objective of this short report is to identify project structures that 

make low-income community solar projects more cost-effective, 

replicable, and scalable, for electric cooperative and municipal 

utilities. This report explores the tradeoffs between providing energy 

bill savings for low-income subscribers and utility project returns, as 

well as some of the key lessons learned from existing successful lowincome community solar pilot projects. 

Introduction

Community solar1 projects are a fast-growing segment of the solar 

market, expected in a recent GTM Research analysis to grow to 

a 500-megawatt (MW) annual market by 2019, and account for 

almost a quarter of the U.S. non- residential PV market over the 

next five years.2

 Further, electric cooperatives are expected to 

“continue to drive the majority of new community solar programs 

brought online in the long term,” due to the large number of 

cooperative utility customers nationwide.2

 

However, this growth may not include all income segments of 

society. In a recent study, 73% of community solar programs 

required an upfront customer payment, which often excludes low 

and moderate income (LMI) households without upfront capital or 

access to credit.3

 LMI households are often also energy burdened. 

The Colorado Energy Office defines households as energy burdened 

if they spend more than 4% of their annual income on utility bills.4

Based on research performed by the U.S. Census and compiled 

by the Colorado Energy Office, roughly 30% of households in 

Colorado are energy burdened, often severely, under this definition.

Low-income community solar (LICS) offers a tool to expand 

customer access to solar energy by reducing or eliminating the 

upfront cost barrier, and provides more flexibility in payment terms 

than a traditional solar project. Cooperatives and municipal utilities 

have often taken the lead in developing LICS projects, due to their 

greater regulatory flexibility, and are the focus of this analysis.

In order to alleviate the impacts of energy burden on LMI 

households through solar development, the Colorado Energy Office 

(CEO) launched its Low-Income Community Solar Demonstration 

Program in 2015. The CEO awarded a $1.2 million grant to 

GRID Alternatives, a nonprofit organization that implements 

solar photovoltaic (PV) and energy efficiency projects for lowincome families, to implement the pilot program. The program 

also generally leveraged matching utility investments. GRID 

Alternatives partnered with eight Colorado rural electric cooperative 

utilities to develop the program’s portfolio of low-income community 

solar projects listed in Table 1.

A detailed evaluation of this Demonstration Program, as well as 

a subscriber-focused analysis and low-income community solar 

Energy-Burdened Households in Colorado

Figure 1. Energy Burden in Colorado5

1. See Glossary at the end of this document for additional definition of italicized terms. For additional information on community solar for municipal utilities, see the brochure 

“Lessons Learned: Community Solar For Municipal Utilities” at https://www.nrel.gov/docs/fy17osti/67442.pdf

2. Honeyman, C. and Shiao, M.J. (2017). “U.S. Community Solar Outlook 2017.” GTM Research. https://www.greentechmedia.com/research/report/us-community-solaroutlook-2017

3. Solar Electric Power Association. 2015. Community Solar Program Design: Working Within the Utility. https://sepapower.org/resource/community-solar-program-designworking-within-the-utility/

4. Colorado Energy Office (2015). “Colorado Energy Office awards $1.2 million grant funding to GRID Alternatives for low-income solar project.” https://www.colorado.gov/

pacific/sites/default/files/atoms/files/Colorado%20Energy%20Office%20awards%20%241.2%20million%20grant%20funding%20to%20GRID%20Alternatives%20for%20

low-income%20solar%20project.pdf

5. Colorado Energy Office. “CEO Annual Report 2014/2015” https://www.colorado.gov/pacific/sites/default/files/atoms/files/Colorado%20Energy%20Office%20Annual%20

Report%202014-2015.pdf
2

program development best practices, are summarized in the report 

“Insights from the Colorado Energy Office Low-Income Community 

Solar Demonstration Project.”6

This report features an in-depth review of the largest project in the 

program (Poudre Valley Rural Electric Association), a financial 

analysis of the utility return for six of the projects that provided 

financial data, as well as a discussion of potential LICS project 

structures for cooperatives and municipal utilities. Although there 

is significant discussion of utility return in this report, a low-income 

community solar project might still meet its LMI household savings 

objectives while not ultimately earning a large return. Reducing 

the energy burden of LMI households is a primary objective of 

dedicated low-income community solar. However, projects that 

generate a slight return, or at least do not result in large financial 

losses, will ideally enable more cooperatives and municipal utilities 

to engage in LICS projects without relying on project grants or 

excess capital.

Demonstration Program Results

Poudre Valley Rural Electric Association 

The largest project in the Demonstration Program, developed by 

Poudre Valley Rural Electric Association (PVREA), utilized a 

utility-led Power Purchase Agreement (PPA)-based project structure. 

For its community solar array, PVREA used a unique ownership 

approach. It utilized one of its taxable subsidiaries to develop and 

own its system, which allowed it to take advantage of the federal 

tax incentives. It then passed these incentives through to its tax 

equity investor in the project, which assisted with project finance. 

Then PVREA entered into a PPA with this subsidiary that owned 

the project and sold the power to PVREA. The advantage of this 

approach is that PVREA avoided a large upfront cost for the system 

and instead simply paid a certain rate for the solar generation. Then, 

based on the PPA rate, PVREA established a solar credit rate that 

meets its customer savings and overall return objectives. PVREA 

also blended the subscribership to its 1.95-MW community solar 

array between three groups: non-LMI residential subscribers (39% 

of the array), nonprofits (26%), and low-income subscribers (36%). 

Although the traditional subscribers and nonprofits will still save 

money, they made up 65% of the array and paid up front for their 

subscription, which helped to improve the overall economics of the 

project. LMI subscribers received no-cost four-year agreements, 

with a guaranteed 30% savings on their retail energy rate, which was 

similar to the savings provided by the other utilities under the CEO 

Demonstration Program. It is also worth noting that PVREA can 

change the subscription terms under its community solar program 

in the future, allowing them to fine-tune the exact targeted savings 

and adjust for future energy market developments. PVREA indicated 

that the transaction costs associated with pursuing this structure were 

significant, and that a MW or greater scale project would likely be 

required to attract interest.

Ultimately, PVREA expects to earn a roughly break-even return 

on its 700 kW LMI portion of the community solar project, when 

compared with its returns under business as usual. This is due to the 

availability of Renewable Energy Credit (REC) payments, lower 

project costs due to a larger project size, and PVREA’s monetization 

of the tax incentives. PVREA’s expected break-even return is a 

significant accomplishment, and demonstrates that community 

solar projects can dedicate large portions of their capacity to LMI 

subscribers in a cost-effective manner.

In spite of its break-even overall return, there were several 

challenges that limited the project. The project’s economics were 

limited by its “take-or-pay” arrangement with Tri-State and lack of 

demand charge savings under its contract. In addition, contacts at 

PVREA indicated that the project was done on a brownfield site, 

which added significantly to the overall cost of the project due to 

extended permitting timelines and land mitigation requirements. 

PVREA’s approach may be subject to regulatory limitations in 

certain states, but cost-effectively provided a significant benefit for 

LMI subscribers. 

Cooperative-Owned Community Solar 

Methodology

Financial models were developed for six of the eight utilities in order 

Table 1. Summary of CEO LICS Projects

Project Name Project 

Size (kW)

Subscribers

Delta Montrose Electric 

Association (DMEA)

151.1 43

Empire Electric Association 

(EEA)

26.4 7

Fort Collins Utilities (FCU) 63.6 30

Grand Valley Power (GVP) 36.5 10

Holy Cross Energy (HCE) 144.7 45

Poudre Valley Rural Electric 

Association

700 140

San Miguel Power 

Association (SMPA)

197.2 60

Yampa Valley Electric 

Association (YVEA)

165 45

TOTAL 1,484.5 380

6. Colorado Energy Office (2017). “Insights from the Colorado Energy Office 

Low Income Community Solar Demonstration Project.” https://www.colorado.

gov/pacific/sites/default/files/Insights%20from%20the%20CEO%20LowIncome%20Community%20Solar%20Demonstration%20Project.pdfGRID%20

Alternatives%20for%20low-income%20solar%20project.pdf
3

to examine their project returns under the community solar projects, 

as well as under a business-as-usual case (if utilities continued to 

charge their LMI customers for electricity at retail rates). Data for 

Fort Collins Utilities was unavailable at the time of analysis. All six 

of the utilities analyzed were tax-exempt rural electric cooperatives, 

with project sizes between 26 kilowatts (kW) and 200 kW. In order 

to protect the business-sensitive financial information of individual 

utilities, the utility returns were combined into a single weighted 

average return, which limits the generalizability of the results to 

future projects.

To compare the projects, we used the net present value (NPV) metric. 

The NPV metric accounts for the discounted value of future cash 

flows, and can quantify a net loss where both the cash outlay and 

cash flows are negative (which was the case for several utilities). To 

discount the value of future cash flows, a 5% discount rate was used.7 

Although cooperative utilities do not have a traditional cost of capital 

(see call-out box on page 6), this discount rate was approximated 

based on an interview with one of the utilities, and by using the NYU 

Stern Cost of Capital dataset, which indicated a 4.6% cost of equity 

for utilities (the six utilities included in the analysis did not use debt 

financing). One shortcoming of the NPV metric is that it is purely 

financial—ancillary benefits of solar (e.g., air quality, reliability, 

consumer cost stability) are not included. For LMI customers in 

particular, the benefit of reduced electricity bills can be significant, 

allowing households to avoid making difficult decisions about 

whether to prioritize expenditures on their families’ health, or on 

energy bills. 

After defining the weighted average utility return, a sensitivity 

analysis of the impact of the initial system purchase price, the 

inclusion of tax incentives, and varying customer discounts was 

performed in order to quantify the impact of these variables on the 

future returns of LICS projects. 

The project returns were not compared against other types of energy 

burden reduction programs, such as weatherization or bill assistance, 

as this information could not be gathered within the timeframe of 

this analysis. Future study of the comparative benefit of community 

solar versus these other programs should be conducted in the future. 

Cooperative-Owned Community Solar Results

These projects were jointly funded by CEO and the participating 

utilities, but also benefitted from community contributions obtained 

by GRID Alternatives and from volunteer installation labor 

(including the low-income subscribers). External project financing 

was not utilized by the utilities, although one utility did finance its 

project through an internal 0%-interest loan. All six of the electric 

cooperatives analyzed are tax-exempt entities, so no tax liabilities or 

deductions were included in the analysis. 

Although the upfront system cost was subsidized by CEO, with the 

exclusion of one small project that received 100% CEO funding, the 

participating utilities paid between $0.60/watt (W) and $2.00/W for 

the acquisition of the solar systems. Out of the six utilities analyzed, 

all but one of the projects generated a positive return. The weighted 

average NPV for the projects was roughly $118,000, meaning that 

the projects will generate $118,000 in net income over the course 

of 20 years, after accounting for the utility’s portion of the initial 

capital cost. The project that did not generate a positive return cost 

more up front, and also provided the highest discount (52%) to its 

LMI subscribers. 

Without the CEO funding, all but one of the projects would have 

resulted in a loss, with a weighted average return of roughly -$75,000. 

The project that would have earned a positive return without CEO 

subsidy provided a relatively small (15%) subscriber discount, which 

may be too small to impact households’ energy burden and likely 

explains much of that project’s higher overall return.

The complete transaction structure utilized by the utilities is shown 

in Figure 2. The utilities’ returns from the community solar projects 

are smaller than their returns under a business as usual case. This 

is in part because the utilities paid for a portion of the upfront cost 

of the system, which would not have been required under business 

as usual. In addition, because the solar generation is used to credit 

subscribers’ bills at a rate below typical utility rates, this results in 

lower revenues for each kilowatt-hour (kWh) credited. For example, 

if the utility provides a 0.06/kWh credit to an LMI household, 

this equates to $0.06/kWh less in utility bill revenues from that 

subscriber. In summary, despite receiving a grant for a portion of the 

system cost, these projects were less profitable to utilities than their 

business as usual case. In addition, for electric cooperatives that rely 

on Tri-State for wholesale power, Tri-State’s energy policies require 

cooperatives to pay for all of their electricity consumed, even if that 

consumption is partially met by the community solar project, which 

further lowered these projects’ returns.8

Colorado Utility Returns Context

Because Colorado is a regulated power state, the concept 

of utility return requires additional context. All Colorado 

utilities can own generation assets, but cooperative utilities 

primarily rely on wholesale energy providers to generate 

electricity, and do not typically own many generation assets. 

Electric cooperatives primarily manage the transmission 

and distribution infrastructure to deliver the electricity 

generated by wholesale providers, and recover their 

expenses from customers through their electric rates. As a 

result, cooperatives do not recognize profits or losses like a 

for-profit (i.e., investor-owned) utility would. Therefore, for 

analysis purposes, any utility returns in this context will be 

defined as the net-present value of project cash flows, with 

the disclaimer that the cooperatives’ regulatory context may 

allow them to prioritize financial decisions differently than a 

for-profit utility would. 

7. Damodaran, A.New York University Stern School of Business. “Cost of Capital 

By Sector (US)” http://people.stern.nyu.edu/adamodar/New_Home_Page/

datafile/wacc.htm

8. Tri-State Policy 115 and 118:

http://www.lpea.com/pdf/DOE/TriState115.pdf

http://www.southwestchptap.org/Data/Sites/1/documents/states/Tri-State_Policy_

Summary.pdf
4

The factors that contributed to the lower return in these projects are 

summarized below:

1. Utilities still paid for approximately half of the upfront system

cost.

2. Utilities received less revenue from subscribers than they would

have under retail rates.

3. Utilities receiving wholesale power from Tri-State were still

required to pay for energy generated by the solar system due to

their take-or-pay arrangement.

4. Most of the utilities were tax-exempt, and thus were not able to

take advantage of federal tax incentives.

5. Given that the projects were relatively small, there were minimal

economies of scale.

Figure 3 shows the cash flows of the community solar project, 

in comparison with cash flows under retail rates (the business 

as usual case). In year 0, the utilities paid for the upfront cost of 

the community solar system. Then, in years 1-20, the utilities are 

expected to earn lower revenues from the community solar project 

than they would have under business as usual.

When compared with business as usual, the community solar 

projects resulted in a decrease in utility returns of $183,000 

over the course of 20 years, assuming a 5% discount rate. This 

means that the projects’ return over 20 years, including the cost 

to purchase the system, was on average $183,000 less than if the 

utilities had not done the projects. Spread evenly over 20 years, this 

equates to $9,150 per year in lower utility net income. However, 

the returns of future LICS projects will depend greatly on the 

regulatory framework of each individual utility. For example, if 

an investor-owned utility had purchased and owned the system, 

the project return might have been driven more by the capital cost 

of those assets than the difference in revenues, due to investorowned utilities’ ability to receive regulated returns based on their 

total assets.9

 The regulatory environment will greatly impact the 

economics of future LICS projects. 

Factors Influencing Utility Return

There are numerous factors influencing a LICS project’s return, 

and these factors will vary considerably depending on the region 

and project requirements. The relative hypothetical impact of 

capital costs, federal tax incentives, and debt financing on a solar 

project’s levelized cost of energy (LCOE) are summarized in Figure 

4. Although the cost of debt financing is also a major driver of

solar project costs, the cooperatives funded the projects with their

own capital and did not use any financing. However, the cost of

energy is only half of the picture; project returns are also largely

determined by the revenues earned by the project (for example,

subscriber payments and renewable energy credits). A sensitivity

analysis of the hypothetical impact of several of these major factors

on utility return—subscriber credits, capital costs, and federal tax

incentives—is included below.

1. Impact of Credit Discount

Although capital costs and incentives are an important

component of the overall project returns, the level of solar

credit had the largest impact on the overall utility return for the

projects. Compared to business as usual, the community solar

return would have decreased by roughly $134,000 between a

20% and 60% subscriber discount. The projects were unable to

Figure 2. Utility Transaction Structure Summary

9. For more information on utility regulation, see: Electricity Regulation in the 

U.S.: A Guide (Lazar, 2016). 
5

provide a greater than 60% discount to LMI customers because 

they only credit the variable per-kWh rate, and excluded the 

fixed charges that comprised the remainder of customers’ bills.

Since one objective of LICS projects is to lower the energy 

burden for LMI households, it is important to recognize that larger 

subscriber credits must be offset by other revenues or cost savings. 

These could include tax incentives, renewable energy credit (REC) 

payments, demand charge savings, avoided wholesale power costs, 

or community solar incentives, to name a few.

Key Takeaway: There is a tradeoff between the level of 

assistance for LMI households and utility returns. Offering 

larger discounts to LMI subscribers results in lower utility 

revenues in comparison to what they would have received 

under business as usual. This gap in revenue must be absorbed 

by the utility, or otherwise covered by additional incentives or 

community solar project revenue.

2. Capital Costs

One major driver of the utilities’ return on the projects was

the initial capital investment in the project. One of the utilities

provided in-kind contributions, such as land for the solar system,

and did not pay any upfront cost for the system, which resulted in

a much higher return for that project in comparison to the other

utilities that paid for up to 50% of the project cost. The systems’ 

total installed costs also varied considerably, from $1.57/W to

$3.75/W between the lowest and highest cost systems.

Because each utility project provided different subscriber credits,

the LMI subscribers’ year-one bill savings were standardized

to 30% for all six utility projects to control for this variable.

Then, because the system costs varied, the impact of potential

system cost reductions between 0% and 50% of the capital costs

for each project was examined. A 50% reduction in the initial

capital cost resulted in an increase of up to $50,000 in project

returns. Although this 50% capital cost reduction did not have 

as significant of an impact on the projects as expected, this 

was partially due to the fact that the upfront capital costs of the 

projects were subsidized by CEO funding. If a future project’s 

upfront costs were not subsidized, system cost reductions would 

likely play a larger role in the overall project return. 

Key Takeaway: Despite reductions in solar project costs, capital 

costs are still a major factor in project returns. Reducing the 

upfront cost of a solar system is one of the best ways to increase 

overall project solar returns. However, reducing capital costs 

is less important if the system’s cost is partially subsidized. 

One limitation for LICS projects was that their median project 

size was 148 kW; MW-scale projects tend to be cheaper due 

to economies of scale, and are better able to attract tax equity 

investment.

3. Federal Tax Incentives

Another major impact on a project’s return is the inclusion of

the federal tax credit and accelerated depreciation benefits for

solar projects. The federal tax credit is currently 30% of the

system’s total qualified basis, subject to a periodic stepdown

and eventually reaching 10% by 2022, whereas the accelerated

depreciation allows a project owner to fully depreciate the asset

for tax purposes in the first five years. A unique feature of the

rural electric cooperatives involved in these projects was the fact

that they are tax-exempt entities, and therefore were not able to

take advantage of these incentives. If the cooperatives had been

taxable entities, these incentives would have provided an average

$123,000 benefit to their projects, assuming a 40% tax rate and

sufficient tax appetite, but would have also had to pay taxes,

which could reduce this benefit.

Although most of these projects were too small to attract tax

equity interest, projects under 1 MW could still potentially

pursue PPA transactions where a taxable third party owns the

Figure 3. Community Solar Cash Flow Comparison
6

system and takes the tax benefit and passes on some of this value 

to the tax-exempt utility. For additional information on the tax 

incentives, refer to the SEIA Guide to Federal Tax Incentives for 

Solar Energy.10

Key Takeaway: Tax incentives can be a major source of value 

to a community solar project. However, transaction costs, such 

as the legal fees and financial due diligence required to partner 

with tax equity investors, can be significant, making it difficult 

or uneconomical to pursue this option at smaller project sizes. 

It should also be noted that tax equity investors may not be 

required if a taxable utility has sufficient tax liability to utilize the 

incentives themselves. Smaller projects without taxable owners 

may not be able to take advantage of the tax incentives, but could 

potentially partner with a taxable third party under a PPA.

Synthesis

If the tradeoff between utility returns and LMI subscriber discounts 

is not anticipated, utilities or developers may see significant losses 

from supporting an LMI project, which may ultimately discourage 

utilities and developers from completing more LMI projects in 

the future. Balancing the project’s financial viability, while still 

providing a meaningful reduction of LMI household’s energy 

burden, is essential to creating a replicable LICS program.

Using the data from the six utilities included in the financial 

analysis, the tradeoff between increasing subscriber discounts and 

decreasing utility returns, in comparison to business-as-usual, is 

shown in Figure 5. This figure shows what subscriber discounts 

and incentives would be required for a low-income community 

solar project to “break even” by earning the same return as under 

business as usual. To achieve a similar return for the utilities as 

under business as usual (with similar CEO grant funding), it was 

estimated that if subscribers received a 10% to 20% reduction on 

their utility bill, and the utilities partnered with a tax equity investor 

to take advantage of the federal tax incentives, they would earn a 

return similar to what they would have earned under their standard 

rates. PVREA broke even while providing a 30% bill reduction 

to subscribers because it received REC payments, and received 

economies of scale from its larger system size. It should be noted 

that the value of the tax incentives to the project owner under a 

tax equity arrangement is subject to negotiation, and the assumed 

benefit below represents the upper limit that could potentially be 

monetized.

Using the costs and financial data provided by six of the 

participating utilities, the red columns in Figure 5 show the 

estimated average decrease in net income (on a net present value 

basis), if the utility projects had all provided a subscriber discount 

between 0% and 60% (but did not utilize the federal tax incentives). 

The columns in blue show the same average difference in net 

income, but also assume that the utilities were able to partner with a 

tax equity investor that could fully utilize the federal tax incentives. 

The NPV metric accounts for the discounted value of future cash 

flows, and is a metric of the profitability of a project.

It should be noted that a 10% to 20% discount will most likely not 

significantly reduce the energy burden of LMI households. In the 

case of the Demonstration Program, utilities set their own project 

goals, with most aspiring to provide a subscriber with cost savings 

of about 50%. 

In the future, where utilities are unable or unwilling to accept a 

lower return in comparison to business as usual, other sources 

of funding (such as state incentives), lower project costs, and/or 

other innovations would be required to achieve larger subscriber 

discounts. 

Figure 4. Drivers of Solar Project LCOE

10. Martin, K. SEIA. “Guide to Federal Tax Incentives for Solar Energy.” 

https://www.seia.org/solar-tax-manual
7

Figure 5. Community Solar NPV Breakeven with Tax Incentives

Third-Party-Led LMI Solar Approach

Most of the utility projects in the program were 100% subscribed by 

low-income households, which impacted a much broader number of 

LMI customers, but also required additional grant funding. The one 

exception was PVREA, which subscribed 36% of its ~2-MW PV 

system to LMI households (700 kW). In addition to these utility-led 

approaches, there are also third-party-led LMI community solar 

approaches that involve a non-utility entity developing the project 

and selling the electricity and renewable energy credits to either a 

utility or directly to households. Although third-party-led projects 

have not generally included 100% LMI members, they could 

potentially adopt this approach in the future. There are two main 

third-party-owned approaches to LMI participation in community 

solar in the United States: 

• Carve-outs: Required LMI subscriber participation levels of

typically 5% to 20% of the system capacity for all community

solar projects.

• Subsidies: Existing incentives for solar systems for LMI

households (e.g., low-interest financing, developer incentives for

including LMI households, etc.) are present in certain states.

An advantage of these approaches is that it allows a third-party 

developer to achieve larger project scales and attract tax equity. As 

demonstrated in the PVREA community solar project, another 

option is to include a mix of higher-income subscribers who may be 

willing to pay more for their shares, along with a large proportion 

of LMI subscribers, potentially obviating the need for subsidies to 

make a project economically viable.

Currently, there are five major state markets expected by GTM 

Research to drive the majority of third-party-led community solar: 

Colorado, Massachusetts, Minnesota, New York, and Maryland.2 In 

addition, there are currently 14 states (and the District of Columbia) 

that have adopted community solar policies or incentives programs, 

as discussed in greater detail on Vote Solar’s “Shared Renewables 

HQ” website.11

One disadvantage of a carve-out approach is that third-party 

developers can struggle to find enough LMI subscribers for each 

project to meet their LMI targets.12 One potential solution is a 

project portfolio-based carve-out approach that allows a third-party 

community solar owner to subscribe more LMI households to 

certain projects that could support the LMI subscriber discount, 

and less on others.

Conclusion

The Colorado Low-Income Community Solar Demonstration 

Program resulted in 1,485 kW of community solar projects 

providing bill credits to 380 low-income subscribers. These 

programs demonstrate that municipal and cooperative utilities can 

reduce the energy burden of LMI households through dedicated 

LICS projects and provide several key project structure and 

financing lessons learned within their particular regulatory context:

• Larger community solar project scales (over 1 MW) can increase

project returns through lower capital costs and the ability to use

tax incentives, but also require utilities to recruit and retain a

larger number of low-income subscribers.

• There is a tradeoff between increasing subscriber discounts for

low-income households and decreasing utility project returns.

Although returns for the community solar projects were positive,

they were smaller than the returns the electric cooperatives would

have earned under business as usual.

• The inclusion of federal tax incentives in the projects can

significantly impact project returns, although most of the utilities

11. Vote Solar. “Shared Renewables HQ”. http://www.sharedrenewables.org/

community-energy-projects/

12. Lotus Engineering and Sustainability. “Analysis of the Fulfillment of the LowIncome Carve-Out for Community Solar Subscriber Organizations” November 

2015. https://www.colorado.gov/pacific/sites/default/files/atoms/files/LowIncome%20Community%20Solar%20Report-CEO.pdf
8

National Renewable Energy Laboratory

15013 Denver West Parkway 

Golden, CO 80401

303-275-3000 • www.nrel.gov

NREL is a national laboratory of the U.S. Department of Energy

Office of Energy Efficiency and Renewable Energy

Operated by the Alliance for Sustainable Energy, LLC

NREL/TP-7A40-70536 • April 2018

NREL prints on paper that contains recycled content.

involved in the Demonstration Program were tax-exempt, and 

their projects were too small to take advantage of tax incentives. 

Cooperatives with smaller projects could potentially partner with 

a taxable third party under a PPA instead of purchasing their 

systems outright. 

As shown by the Demonstration Program, project structure makes 

a significant difference in the ultimate utility return and subscriber 

impact of LICS. By balancing this tradeoff, as well as identifying 

new revenue streams for LICS projects, a replicable cooperative or 

municipal utility-led LICS model can be created under which both 

low-income households and utilities benefit.

Recommendations for Further Study

One limitation of this analysis is that it looked solely at the project 

returns of the LICS projects in comparison to the utilities’ business 

as usual case. Evaluating the effectiveness of LICS in comparison 

to existing bill assistance and weatherization programs would be a 

logical next step to this analysis. For example, one could compare 

the subscriber savings under these projects with the subscriber 

savings from direct bill credits, and determine whether community 

solar leverages these utility investments more effectively.

In addition, the wholesale costs and demand charges paid by electric 

cooperatives and municipal utilities may vary significantly between 

states, which could translate to significant regional differences in the 

economic viability of future low-income community solar projects. 

One opportunity for future research could be to identify states with 

higher wholesale costs and demand charges, where LICS could have 

higher utility returns.

Glossary

Community Solar: A solar-electric system (often ground-mounted) 

that provides power and/or financial benefit to multiple community 

members. Community solar is typically owned by a utility or a 

private developer, and sells portions of the array’s power (kW) or 

generation (kWh) to multiple community subscribers. 

• Subscriber: Utility customers, such as households or businesses,

that have a partial stake in a community solar project (either a

share of the system’s capacity or production).

• Low- to Moderate Income (LMI): Individuals or families

whose household income does not exceed 115% of the median

income for the area, when adjusted for family size.13

• Energy Burden: The percentage of gross annual household

income that is used to pay annual residential energy bills. In a

CEO study, households that pay more than 4% of their annual

income on utility bills are considered energy burdened.

• Demand Charge: Fees applied to the electric bills of commercial

and industrial customers based on the highest amount of power

drawn during any (typically 15-minute) interval during the billing

period.

• Levelized Cost of Energy (LCOE): An economic metric of the

total cost to build and operate a power-generating asset over its

lifetime divided by the total energy output of the asset over that

lifetime, accounting for the time value of money, as well as the

costs of fuel, operations, and maintenance.

• Net-Present Value (NPV): The difference between the present

value of cash inflows and the present value of cash outflows.

NPV is used in capital budgeting to analyze the profitability of a

projected investment or project.14

• Renewable Energy Certificate (REC): A market-based 

instrument that represents the property rights to the

environmental, social, and other non-power attributes of

renewable electricity generation. RECs are issued when one

megawatt-hour (MWh) of electricity is generated and delivered to

the electricity grid from a renewable energy resource.15

• Discount Rate: In this analysis, the interest rate used in

discounted cash flow analysis to determine the present value of

future cash flows.16

• Cost of Capital: The cost of funds used for financing a business.

Cost of capital depends on the mode of financing used; it refers

to the cost of equity if the business is financed solely through

equity, or to the cost of debt if it is financed solely through debt.

Many companies use a combination of debt and equity to finance

their businesses. Since the cost of capital represents a hurdle rate

that a company must overcome before it can generate value, it

is extensively used in the capital budgeting process to determine

whether the company should proceed with a project.17

13. U.S. Department of Housing and Urban Development. “How is a Low to 

Moderate Income Individual or Family Defined?” https://hudgov.prod.parature.

com/link/portal/57345/57355/Article/4684/How-is-a-Low-to-Moderate-Incomeindividual-or-family-defined

14. Investopedia “Net Present Value (NPV)” https://www.investopedia.com/terms/n/

npv.asp#ixzz4yLYvy3X5

15. EPA. “Renewable Energy Certificates” https://www.epa.gov/greenpower/

renewable-energy-certificates-recs

16. Investopedia “Discount Rate” https://www.investopedia.com/terms/d/

discountrate.asp

17. Investopedia. “Cost of Capital” https://www.investopedia.com/terms/c/

costofcapital.asp

18. Investopedia “Net Income” https://www.investopedia.com/terms/n/netincome.asp