The Clean Energy States Alliance (CESA) and the U.S. Dept. of Energy's National Renewable Energy Laboratory (NREL) last month released a report that reviews existing and emerging low- and moderate-income (LMI) community solar programs and discusses key questions regarding their design. Produced by NREL for CESA, Design and Implementation of Community Solar Programs for Low- and Moderate-Income Customers also outlines how states can leverage incentives and make use of various financing structures to lower the cost of LMI community solar, as well as address issues regarding public outreach and marketing.

A growing roster of states --12 plus the District of Columbia to date -- have launched community solar programs with a low- and moderate-income household component. While the list is expected to grow, substantial challenges need to be addressed in order for these programs to have a good chance of succeeding, the report authors highlight. "Community solar has the potential to vastly increase access to solar for low- and moderate-income communities, especially for renters, but programs need to be specifically designed with those customers in mind in order to have the maximum benefit. This report can help state program officials to design effective programs," they state.

"Low- to moderate- income households often rent, have lower credit scores, and have limited funds to make up-front investments in PV. Some states have adopted innovative financing to provide LMI residents with access to PV, but the applicability and programs effectiveness of financing strategies can vary, depending on the type of housing and the customer’s home ownership status, NREL's Jeffrey J. Cook and Lori Bird wrote in a January 2018 research report entitled Unlocking Solar for Low- and Moderate-Income Residents: A Matrix of Financing Options by Resident, Provider, and Housing Type.

LMI community solar program pricing and variability

Pricing of community solar projects and programs varies considerably across the U.S. due to a variety of factors, the CESA-NREL report authors highlight. These include differences in the availability of incentives, solar irradiance, electricity costs, and PV installation costs.

LMI community solar subscriber payback periods vary depending on the the subscription's up-front cost, the ability to take advantage of the federal investment tax credit, and the bill credits received, the report authors explain. Typically, the LMI community solar customer's receives a utility bill credit at the retail rate, which may include a REC (Renewable Energy Credit) or other incentive payment.

In some markets, project developers are able to offer products with no up-front payment and customer energy bill savings from Day One. LMI community solar customers in Massachusetts and Minnesota are able to start saving from Day One, for example. All the other products covered in CESA-NREL's study are structured around an up-front payment with simple paybacks ranging from 7 to 12 years.

Subscription models with an up-front payment and multi-year payback periods are less likely to be feasible for LMI customers, according to the study. It's possible to finance up-front payments by customers taking out a traditional bank loan, but LMI customers may not qualify, or they may have to pay high interest rates on them, they note.

As a result, free LMI community solar programs are being designed, as are programs with minimal periodic payments coupled with utility bill credits. The Colorado Energy Office targeted a 30–50 percent reduction in LMI bills through its community solar pilot programs, for example, the purpose of which is to lower LMI community solar energy costs to the state average, the report authors point out.

The report authors offer program designers a simple formula that can help them decide how much to subsidize LMI participation in community solar:

Electricity energy burden = annual electricity expenditures/annual household income

Addressing higher costs and LMI community solar financing

Generally speaking, LMI community solar projects have higher project financing, customer acquisition, and subscription management costs than community solar projects in which there are no LMI customers, the report authors highlight. Furthermore, it may be necessary to offer prospective LMI community solar subscribers greater financial benefits as compared to non-LMI subscribers.

Specific incentives that enable LMI community solar project developers to defray these additional costs may be required in order to induce them to carry out LMI programs, the report authors continue. "In some cases, incentives go directly to developers, who can then pass along lower costs to LMI subscribers. In other cases, incentives may go directly to the LMI subscriber," they explain.

The report authors offer two examples of ways an community solar program could reduce electricity costs for LMI customers. In one, LMI customers are offered free subscriptions and utility bill credits based on the output of their subscription to the PV array that covers part of a customer’s electricity use. In the second, LMI customers are offered electricity from community solar subscriptions that cover all of their electricity usage at a reduced cost. Furthermore, these programs could be coupled with weatherization projects in order to minimize utility bill savings credits from the community solar subscription.

In both examples, LMI customers' annual electricity spending is reduced by half, from $1,000 to $500, according to the study. The LMI customer in the first example receives $500 of free electricity provided by a 3.2-kW share of a community solar array, which provides 4,167 kWh annually (50%) of the customer’s consumption. In the second example, the LMI customer's subscription covers all their electricity consumption at a discounted price as compared to their from their exiting electricity rate -- $0.06/kWh as compared to $0.12/kWh in the example -- from a 6.3-kW share of a community solar array.

Defraying up-front LMI community solar costs

The up-front cost of subscribing to a community solar project can be a significant barrier for LMI customers. In a 2017 study, Pacific Consulting Group found the top three considerations for prospective customers considering participating in community solar were up-front cost, the percentage of subscribers' utility bill covered, and initial contract duration, the CESA-NREL report authors note.

To address this, some community solar programs, such as the Blue Wave project in Massachusetts, offer a pay-as-you go model with zero up-front cost. Most community solar programs require an up-front payment, however, according to the CESA-NREL study results.

Low credit scores serve as a barrier for LMI community solar programs looking to obtain financing, however.

Even those with strong credit scores may not want to take on additional debt, especially if doing so requires a down payment, the report authors point out.

That said financing schemes that allow states to navigate around barriers associated with obtaining traditional financing exist. The report authors offer two examples.

Option 1: On-bill financing allows customers to pay community solar subscription fees through ongoing payments on utility bills. On-bill financing may base creditworthiness on utility bill payment history rather than traditional credit criteria. For instance, the Grand Valley Power LMI program in Colorado allows LMI customers to pay subscription fees through on-bill financing. The program charges a subsidized subscription fee of $0.02/kWh, which is simply subtracted from LMI customers’ bill credits

Option 2: Lower interest rate loans. In Massachusetts, LMI customers are eligible for lower interest rates under the Massachusetts Solar Loan program. This can be used for community solar subscriptions in Massachusetts that require an up-front payment. The Mass Solar Loan program offers to reduce interest rates for solar loans by 1.5 percentage points. Furthermore, the program pays down 20% of the loan principal for customers below 120% of state median income, and 30% of the principal for customers below 80% of state median income.

Leveraging incentive programs to boost LMI Community Solar participation

Leveraging existing incentives can offer ways for community solar project developers to support offering subscriptions to LMI households. Taking advantage of utility low-income bill subsidies, federal Low Income Home Energy Assistance Program (LIHEAP) funds, as well those offered via the federal Weatherization Assistance Program number among them, the report authors highlight.

Option 1: Utility low-income bill subsidies

Many utilities provide energy subsidies to low-income customers through ratepayer surcharges. These public utilities commission-mandated actions are known as utility-funded energy subsidies and are different from government assistance programs. Just as these “discounts” are given to low-income citizens, they could also be used for community solar subscriptions. These dollars are separate from any government assistance programs described below. An informal survey by SEPA (2017a) found that nationally several utilities had bill reduction programs ranging from 10% to 50 percent of customers’ bill. In California, the Interstate Renewable Energy Council (IREC 2016) has proposed using some of the revenue that supports the California Alternate Rates for Energy program to fund a 5-MW community solar pilot program.

Option 2: Federal Weatherization Assistance Program (WAP)

Federal appropriations provide formula grants to states to weatherize homes for low-income residents. Each state develops a plan outlining their weatherization goals, which are to be implemented by weatherization subgrantees. Those state plans are submitted to and approved by a DOE project officer. Though renewable energy has been approved for use under the Energy Policy Act of 2005, any project must be able to achieve a savings-to-investment ratio of 1.0 or greater. In addition to meeting the savings-to-investment ratio requirement, the maximum amount that could be spent on a renewable energy system was $3,598 in 2017 (DOE 2017); this limits the size of system that could be installed. At $2.50/W, the spending cap would limit installations to a 1.4-kW system.

To date, no state has used WAP funds for community solar, though a recent WAP memo (DOE 2017) indicates this may be possible. New York is investigating this issue and has put it into their WAP state plan. WAP Memorandum 0248 outlines the general process for including solar and provides tools and resources for determining the savings-to-investment ratio.

Option 3: Federal Low Income Home Energy Assistance Program (LIHEAP)

Federal LIHEAP dollars are used to provide energy bill assistance to low-income residents. The program primarily provides bill assistance by paying the utility. LIHEAP dollars are also used for weatherization efforts (typically 5%–15% of a state’s LIHEAP allocation go to weatherization). If a low-income resident were a subscriber to a community solar array, LIHEAP dollars could be used to pay their community solar subscription, though this structure has not been used to our knowledge. A few states are exploring using funds they typically allocate from LIHEAP to pay for multifamily solar or community solar projects.

While no state has used LIHEAP or WAP funds for community solar, Colorado is using a combination of WAP and LIHEAP dollars, along with funding from the state’s two investor-owned utilities, to install solar on 300 single-family homes This was the first solar PV pilot supported by the WAP, and it installs panels on homes that will also have energy efficiency upgrades. New York was more recently approved by their federal project officer to use WAP dollars for solar on multifamily buildings.