Community Solar “Discounts” Could Raise Electric Bills

Community solar is having a moment in state legislatures across the country, but there is reason to worry that it could make electricity affordability problems worse. In Virginia, lawmakers just expanded shared solar by hundreds of megawatts. Pennsylvania lawmakers have been debating community-solar legislation. Iowa lawmakers considered a similar bill this year.

The details differ, but the basic pitch is the same: customers can subscribe to a solar facility somewhere else, receive credits on their utility bills, and lower their monthly payments without putting panels on their own roofs. That sounds like a discount. The practical question is who pays for it.

Just like other power plants, solar facilities should be compensated for the power that they provide to the grid. But many community-solar proposals borrow from an older and troubled policy: retail-rate net metering. Instead of paying for the electricity based on what it saves the system, net metering programs can give subscribers bill credits tied to the much higher retail price of electricity.

That is where the affordability problem begins. For years, many states used a system called “net metering.” If a homeowner’s rooftop panels produced more electricity than the home used at that moment, the extra electricity flowed into the power grid. The customer received a bill credit, often at roughly the same price the customer paid for electricity from the utility.

Supporters argue that this is simple and fair. The customer supplies electricity and the utility gives credit. It also makes solar easier to finance because customers can understand the payback.

But retail electricity prices are not just power prices. They also pay for power lines, transformers, substations, customer service, storm repairs, and a grid that must be ready when the sun is not shining. Those costs do not disappear because a customer sends electricity into the grid at noon. When one group’s bill goes down without reducing the system’s costs, the difference does not disappear. It is shifted to other customers.

That is the problem with expanding retail-rate net metering into community solar. The solar facility sends electricity to the grid like any other generator. But the subscriber may receive a credit as if that electricity offset the full retail bill, including costs the project did not avoid.

Community solar can make this easier to spread and harder to see. Rooftop net metering at least required a customer to install panels. Community solar can turn the same basic subsidy into a subscription product. Customers sign up and their bills go down, but the costs are buried in rates paid by everyone else.

Some states are already learning how difficult this is to unwind. Hawaii closed traditional net metering to new applicants in 2015. California changed its rules for new rooftop-solar customers after long fights over cost shifting. Illinois ended full retail-rate net metering for new customers beginning in 2025, moving toward credits tied more closely to the supply portion of the bill.

Those states differ. California and Hawaii had much higher solar adoption than many states now considering community solar. Illinois used a different statutory design. But the pattern is hard to miss: retail-rate credits look simple at first, become expensive as adoption grows, and create political fights when regulators try to reduce them.

The usual response is that any cost shift will be small at first. That may be true because if only a few customers participate, the effect on average bills may be modest.

But electricity affordability is a cumulative problem. Utilities are already asking customers to pay to update aging infrastructure and to build new power plants and transmission lines. Regulators spend years trying to trim unnecessary costs from rates. They should not create a new subsidy simply because it is small today.

The political problem may be worse than the immediate rate impact. Once a state creates retail-rate credits, it creates two groups of customers with opposed interests. Subscribers want higher credits. Non-subscribers want lower rates. Developers build businesses around the credits. Utilities seek recovery from the rest of the customer base. Every rate case becomes another fight over who is subsidizing whom. That is bad for affordability and bad for trust. 

Some community-solar proposals try to answer this by promising to move later from retail-rate credits to a “value of solar” formula. That phrase sounds sensible. Solar has value. It can reduce fuel use, avoid some power purchases, and sometimes help with capacity needs.

But a state-set value of solar can become a lobbying contest. Which costs did the solar project avoid? At what hour? In what location? Should the formula include benefits that are hard to measure or only those that can be tied to actual utility savings? The more complicated the formula becomes, the easier it is to manipulate and the harder it is for ordinary customers to see who is paying for what.

There is a simpler rule. Pay solar projects based on avoided cost: what the utility actually saves because the project provides electricity. That principle is already familiar in electricity law. Federal law has long required utilities to buy power from certain small generators at avoided-cost rates. States do not need to invent a generous, complicated billing formula to make sure solar producers are paid for the power they provide.

The hardest tradeoff is that lower credits may mean fewer community-solar projects. But if a project only works because subscribers receive credits worth more than the project saves the system, it is not lowering electricity costs. It is shifting them.

State legislatures and public utility commissions should be clear from the start. If they authorize community solar, credits should be based on avoided costs from day one. They should not use retail-rate credits as a bridge, and they should not lock in decades of above-market credits and hope future regulators can fix the problem later.

Community solar may have a place in state energy policy. But it should not become another hidden charge on electric bills. States should pay solar projects for the value they provide, not create a discount program whose costs are quietly passed to everyone else.

James Coleman is a nonresident senior fellow at the American Enterprise Institute and a scholar of energy law at the University of Minnesota, where he specializes in North American energy infrastructure, transport, and trade.