Low- and Moderate-Income Community Solar Policies

NREL provides basic solar photovoltaic (PV) policy information and resources for low- and-moderate income (LMI) communities.

Solar Policy Background

Distributed solar PV systems have been more widely deployed in recent years. However, not all communities have benefited equally from the uptake in deployment, particularly LMI communities.

As communities aim for higher penetration of clean energy, pressures are increasing to expand into harder-to-reach markets. States, local jurisdictions, and Tribes have led the charge in identifying and piloting approaches to bring the benefits of solar power to LMI consumers.

States such as California, Colorado, Massachusetts, Minnesota, New York, and Oregon have been at the forefront of developing policies and mechanisms to extend solar access to LMI populations. Numerous states have also enacted low-income provisions as part of broader community solar policies. An assortment of financing mechanisms and pilot programs designed to extend the benefits of renewable power generation to LMI communities have been developed and deployed at the state and local level, for example in California, Massachusetts, and Washington, D.C.

Nongovernment entities are prominent players in this space as well. Nonprofit organizations have developed approaches to LMI solar that include using volunteers to construct solar arrays and providing workforce development opportunities.

Community Solar

Community solar has broad applicability. Factors such as shading and inadequate roof conditions make residential solar systems unsuitable for nearly three-quarters of residential rooftops in the U.S., making community solar an attractive option regardless of income level. Some states that have enabled community solar have additionally created incentive programs to provide funding for projects that subscribe low-income customers. Other states have created low-income specific mandates, known as carve-outs, that require a certain percentage of a community solar project or program to be subscribed to by low-income subscribers or low-income-serving organizations. Most states that have enacted community solar legislation include low-income-specific provisions.

Challenges and Next Steps

The LMI solar policy landscape is evolving rapidly as all levels of government are experimenting with policies and financing mechanisms to expand access to solar power. Despite this increased attention, though, extending solar access to LMI communities remains challenging. Multifaceted approaches that simultaneously address the myriad challenges that LMI communities grapple with in pursuing solar power may offer a path forward.

Solar Policy Implementation Issues

Emerging policies and programs aim to address obstacles that impede LMI access to solar power.

By definition, low-income communities have less disposable income, making higher upfront installation costs or community solar subscription prices prohibitive. Low-income individuals also tend to have lower credit scores, which can make attaining a loan for solar investments difficult. Even in cases in which loans are available for community solar purchases , they may not guarantee access for individuals with low credit scores.

Low-income individuals may not be eligible for (or benefit from) state and federal tax incentives for solar if they do not fall within a qualifying tax bracket or have a high enough tax burden. Although tax breaks represent the largest public incentive driving solar PV deployment, they have not been comprehensive in terms of extending affordability to LMI communities.

LMI communities tend to have lower rates of homeownership and are more likely to have multifamily and affordable housing units, which translate into having less control over decisions about rooftop solar and utilities. Even in cases where LMI individuals do own their own homes, if the homes (and particularly the roofs) are not in good condition, rooftop solar may not be a viable option or the best use of funding.

In some areas, if potential low-income customers are already receiving reduced electricity rates through energy assistance programs, the electricity rate available via low-income community solar participation or subsidized PV installations may be higher than what customers are already paying.

Because LMI communities generally have not been targeted for solar investments in the past, and might not be immediately familiar with the benefits of engaging in solar programs, clearly communicating the long-term benefits of solar power can be challenging.

LMI communities have been negatively impacted by deceptive marketing practices that can impact their perspective on the solar industry and related programs. This can impose its own barriers to deploy solar in these markets.

Policy Financing and Funding Design Best Practices

To date, public sector participation and support has been critical in extending solar access to LMI populations, though the mechanisms and funding sources have varied significantly. As the LMI solar sector continues to develop, funding approaches are likely to evolve as well. Although the existing pool of research and literature on LMI solar best practices is relatively shallow, several potential financing mechanisms and funding sources are emerging.

Potential Financing and Cost-Reduction Mechanisms

The following financing and cost-reduction mechanisms have the potential to increase LMI access to solar.

Direct incentives include subsidizing the subscription price for community solar or cost of PV systems, supplementing the bill credit the customers will receive, or direct cash payments to community solar facilities serving low-income customers.

Under loan loss reserve programs, public funds are held in reserve to cover potential losses that loan providers may incur if a customer defaults on a loan. This can mitigate perceived risk and make it easier for residents with low credit scores to obtain a loan.

A common practice in the energy efficiency sector, placing energy-related loan payments directly onto customers' electric bills, may offer advantages for both consumers and financial institutions, including fewer bills and transferability (i.e., to a new homeowner or renter). In addressing low-income solar access, on-bill financing can also be easier to understand—customers can see utility bill savings from solar offsetting loan payments—and is not as dependent on credit scores.

For more information, see On-Bill Financing and Repayment Programs on the U.S. Department of Energy website.

Other mechanisms for increasing LMI customers' access to loans and credit include lowering minimum credit score thresholds and focusing on past bill-repayment history rather than credit scores to determine customer eligibility.

An alternative financing option to asset ownership is third-party ownership, available in many states, which allows customers to access solar through a PPA or a lease. Under third-party ownership, a developer owns, operates, and maintains the PV system, resulting in up-front costs to the customer that are lower than the costs of purchasing a PV system themselves.

Also known as solar group purchases or group buy campaigns, Solarize campaigns reduce the upfront cost of solar by giving groups of individuals or businesses a discounted rate for bulk Solar Power in Your Community purchases—via savings from reduced marketing costs and economies of scale.

Potential Funding Sources

The Low Income Home Energy Assistance Program—a federal program to assist low-income families with costs associated with home energy bills, energy crises, and weatherization—could offer a mechanism for increasing solar access to low-income communities.

The U.S. Department of Energy's Weatherization Assistance Program enables low-income families to permanently reduce their energy bills by making their homes more energy efficient.

The U.S. Department of Housing and Urban Development partners with affordable housing developers to develop on-site renewable energy.

The Community Development Financial Institutions Fund (CDFI Fund) and community development entities (CDEs) are prominent players in developing affordable housing and businesses in LMI communities and can serve an important role in expanding access to solar in these neighborhoods as well. CDFIs and CDEs can assist communities in accessing other financial mechanisms (such as through the Community Reinvestment Act, New Market Tax Credits, or the Community Development Block Grant program) to increase local solar deployment. In other cases, CDFIs and CDEs can directly facilitate integrating solar into their projects (e.g., affordable housing development).

For more information, see Community Reinvestment Act on the Federal Financial Institutions Examination Council website and New Markets Tax Credit Program on the CDFI Fund website.

Some states and communities are forging more strategic partnerships to invest in community solar as a means for creating local job opportunities and growing community wealth. Community organizations in some states are identifying "green zones"—areas that currently shoulder high pollution burdens but could be transformed into healthier, community-driven, environmentally protected areas—and targeting them for investment. Solar could be a critical piece of these types of place-based programs in terms of promoting both environmental and economic benefits.

For more information, see the California Green Zones website.