Energy Efficiency and Renewables in Lower-Income Homes

By Jocelyn Durkay | Vol . 25, No. 06 / February 2017


Did you know?

  • Low- and moderate-income (LMI) households often face significant barriers to installing energy efficiency or renewable energy improvements, including lack of access to upfront capital, low credit scores and lack of home ownership.

  • On average, low-income households pay 7.2 percent of their income on utilities, which is more than three times the 2.3 percent that higher-income households pay.

  • If low-income housing was as energy-efficient as the average U.S. home, low-income customers’ energy costs would decrease by about one-third.

Renewable energy and energy efficiency technologies provide opportunities for reduced energy bills and access to clean energy—provided individuals can afford these resources. Affordability is particularly challenging for low- and moderate-income (LMI) customers. This is partially because these customers face a greater “energy burden”—how much they spend on gas, electric and heating fuel as a percentage of their annual gross household income.

A review of energy expenses in metropolitan areas shows that customers who earn at or below 80 percent of an area’s median income contribute, relative to their income, more than twice that of median-income customers and more than three times that of high-income customers. While a higher energy burden makes lower-income customers a compelling demographic for efficiency improvements or offsetting their energy use—and therefore costs—with renewables, these resources can remain inaccessible for multiple reasons. Upfront capital requirements, low credit scores, lack of home ownership or roof access, residing in multi-family properties, and low awareness of programs or incentives are several barriers that these customers may face.  

State Action

States have adopted two different strategies to include low- and moderate-income households in energy efficiency and renewable energy programs. First, policymakers have implemented innovative financing strategies to increase access for LMI energy customers. Second, policymakers have developed specific energy efficiency and renewable energy programs designed to respond to the needs and challenges of lower-income households. Since states already provide energy bill assistance for certain low-income customers as a method of public assistance, efficiency upgrades can also save states money. 

Access to Financing

Many low- and moderate-income customers lack access to disposable or liquid capital. Financing programs can help this demographic access renewable and efficient energy by addressing this barrier. Such financing policies include allowing for broader credit score requirements; offering credit enhancements, low-interest rates and no upfront capital requirements; or employing approaches specifically for renters.

On-bill financing, also termed on-bill repayment or on-bill recovery, allows customers to repay efficiency and renewable upgrades on their utility bill. New York state offers a “bill neutral” on-bill recovery program in which financing payments must be equal to or less than the utility bill savings generated by improvements. To be more accessible, the program offers two tiers of financing. Customers in one tier have stricter credit requirements, allowing the loans to be sold on the private market, while utilities finance a second tier for customers who don’t meet stricter requirements. The program bases interest rates on area median income, with lower interest rates offered to lower-income customers. Another on-bill financing pilot program in South Carolina was directed to rural customers in an area with income levels 15 percent below the national average. The pilot led to a 34-percent reduction in energy use and resulted in average net annual savings of $288 per home after loan payments.

Another form of financing, energy savings performance contracting, is commonly used in publicly owned properties. Energy savings from installations are guaranteed and performed by preapproved contractors. For example, the Chicago Housing Authority employed energy savings performance contracting for improvements, such as HVAC enhancements and appliance and lighting upgrades, at 60 family and elderly housing sites. Additionally, more than 100 residents were employed in the projects, including job apprenticeships in weatherization.

Massachusetts’ Solar Loan Program ensures that annual interest rates do not exceed 3.25 percent and offers a credit enhancement to lenders to decrease their risk and expand eligibility criteria. Finally, customers whose incomes are below the median thresholds may be eligible for a loan principal buy-down.

LMI-Specific Policies

One growing state policy, shared renewable energy, is increasingly being used to provide renewable energy access for low- and moderate-income customers. Shared renewable energy programs offer an alternative to on-site, “rooftop” solar, allowing multiple customers to invest in a medium-sized renewable energy facility and directly benefit from the energy produced. Because many customers are unable to host on-site renewable energy systems on an individual basis, these programs provide access to a larger demographic. Several states have legislatively earmarked a portion of shared renewable energy systems for LMI customers, including California, Colorado, Maryland, New York, Oregon and Rhode Island. One planned community solar installation in Colorado, for example, will exclusively serve customers at or below 80 percent of area median income.

California has fully subscribed several LMI-specific initiatives under the California Solar Initiative, including programs that provided direct incentives for installing solar photovoltaic panels on multi-family and single-family affordable housing. Legislation enacted in 2015 extended these programs and provided additional funding.

In another instance of LMI-directed programming, the Colorado Energy Office expanded the state’s weatherization and efficiency program to include a solar energy option to reduce household energy burdens. To qualify, rooftop solar installations must be deemed cost-effective and customers must have high electricity use, limited access to community solar and a high solar capacity factor.

Lastly, the New York governor and Public Service Commission established an Energy Affordability Policy in May 2016 as part of an energy transformation initiative. The initiative limits energy costs for New York customers to no more than 6 percent of household income and provides direct cost relief through bill assistance. The policy also establishes a task force to encourage and further develop LMI customer participation in projects. Other programs in the initiative include updated energy reduction targets for gas and electric utilities and referrals of eligible LMI customers by utilities to state program administrators.

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