In short: If you are concerned about energy independence, clean power, and equity, programs targeting poorer households to make the switch to solar are a must. We outline best practices for low income solar programs from our review of 9 states who are leading the way.
Some states and cities are starting to display leadership on strong affordable housing programs which tie energy efficiency upgrades and solar together to provide needed relief to low income households. Their efforts help increase home values, decrease reliance on energy assistance programs over time, reduce risk of eviction, and preserve housing affordability.
Poor households tend to use more electricity than those with higher levels of incomes in similarly sized homes. This is because poorer people have less money to invest in making their homes energy efficient. While those with median incomes spend 3.5% of their income on energy bills, lower income households pay 7.2%. Lower income households face many other barriers which make installing solar challenging. While access to cash may be the most obvious, other factors include:
- Limited credit due to a lack of assets and prior lending history.
- A higher likelihood of having a poor credit rating.
- A lack of taxable income (This voids the benefits of available tax credits)
- The majority of lower income households renting rather than owning their homes.
For success, any low income program needs to target and overcome each of these issues. However, there are other important considerations to address when setting up these programs aside from broadening access to capital:
- Is the program set up in a way to give some benefits to a large number of people rather than a lot of benefits to a lucky few?
- Does the program take advantage of the existing market or does it attempt to supplant it?
- Is the program structured to allow for flexibility and innovation as the solar market changes over time?
- Does the program support individual household decision making?
- Is the program effectively focused on the issues meant to be overcome, or are there also indirectly related secondary goals?
- Is the program easy to understand and administer, or is it complex and/or convoluted?
- Does the program result in households owning the solar panels?
- What kind of consumer protections are in place?
Our review of current low income solar programs in nine states suggests some best practices, and we also note some significant program limitations. While our review of existing programs shows successful strategies in overcoming each of these shortcomings, no program effectively deals with all of them. Rather than trying to create a single comprehensive low and middle income (LMI) solar program in your state, it may be better to create interlocking programs which can support each other as needed. Our review of existing LMI solar programs covers the benefits and limitations of Solar Loans, Solar Grants, and Alternative Funding Source designs:
Low and Middle Income Solar Loan Programs
Ideally, solar loan programs should open up lending to groups that may not otherwise have access to credit. In relation to other low income programs, solar loans could be considered a base source of capital given they can provide a more significant and longer term return on investment compared to grants. They also allow greater flexibility in household decision making and help low income households avoid third party ownership and other leasing agreements which can interfere with solar ownership.
When it comes to supporting solar loans for low income households, Hawaii’s Green Energy Market Securitization Program (GEMS) is an excellent model. By attaching responsibility of repaying solar loans to electric meters rather than to individuals, it makes the program available for low income renters, instead of just those who are fortunate enough to own homes. Using such a strategy actually benefits all income segments, as meter responsibility payments are much more straightforward to understand and navigate than having to negotiate who pays for electricity in the event of a temporary move. GEMS also gets around traditional credit issues by creating alternative measures of loan eligibility.
While Hawaii’s GEMS program is funded by bonds, it may be worthwhile to look into alternative funding sources for similar programs. For example, Massachusetts’s Solar Loan Program uses loan support incentives to eliminate credit issues and attract capital from traditional lenders. The benefit of such a strategy is that it creates the largest return on investment for program dollars. However, it needs to be properly administered to ensure it effectively targets those most in need.
Best Practices for Low Income Solar Grants
Solar grant programs should act as a supplemental source of funds for households who need help lowering installation costs to make solar loans result in immediate savings. Grant programs should be structured to guarantee available funds go to those most in need. Ideally, levels of support should increase as incomes become lower. Grants are a fairer way to broaden access to solar, as tax credits are usually only available to be redeemed by those more well off.
To ensure the best return on investment for LMI households over time, solar grants should complement the existing installation market rather than supplanting it. For ethical reasons, the group administering the LMI grant program should never also have anything to do with installing solar systems, such as is the case in California.
Most existing grant programs are based upon a payment per installed kW up to a certain size of system. While this payment cap is effective, payments need to be further segmented in relation to relative income to ensure those most in need get just as much help as those with incomes closer to the arbitrary level selected for program eligibility.
The majority of programs also depend on solar installers to promote the program and ensure all the proper paperwork is completed. Overall this is an effective strategy, especially when combined with eligibility requirements to ensure quality and levels of consumer protection. In most cases, grant funds are paid directly to installers, which works well in most cases. However, such payments should include strict requirements regarding what portion of the funds should be passed on to the consumer and how much can be kept by the installer to incentivize them to target lower income households.
Alternative Solar Funding Sources for Low Income Households
Alternative funding sources can include non-profit funding or tweaks to existing federal, state, and local low income programs to include solar panel installation. These funding alternatives can either be used to supplement grant funds or act as a substitute for them. The best example we found is Colorado’s Low Income Solar Rooftop Program. The program administrators managed to convince the federal government to include solar panels in its Low Income Weatherization Assistance Program for the state. The program normally helps low income homeowners improve the energy efficiency of their homes by subsidizing home energy audits, financing insulation upgrades, and replacing older appliances.
Last modified: September 19, 2019