State Policies for Low- and Moderate-Income Customer Access to Renewable Energy and Energy Efficiency

Jocelyn Durkay, Megan Cleveland 11/16/2016

Introduction

Low- and moderate-income (LMI) customers face unique barriers in accessing energy efficiency and renewable energy and policymakers are working to address these challenges.

Home under construction.First, LMI individuals and families face a greater “energy burden”—the total annual gas, electric and heating fuel spending as a percentage of total annual gross household income—than other demographics. A recent review of household energy burdens in 48 major metropolitan areas found low-income customers (defined as those with income at or below 80 percent of area median income) contribute 7.2 percent of their income to meet their energy needs. This amount is more than twice the median household energy burden (3.5 percent) and three times greater than higher income households (2.3 percent).

A higher energy burden makes LMI customers a desirable population for assistance, either for reducing wasted energy, increasing efficient use or for offsetting consumption with renewable generation. However, renewable energy and energy efficiency can be inaccessible to LMI customers for multiple reasons, including: 

  • Large upfront capital requirements.
  • Reduced access to desirable financing.
  • Customers’ low credit scores.
  • Lack of home ownership.
  • Inability to access tax incentives.
  • Residence in multi-family housing.
  • Residence in inefficient manufactured housing.
  • Lack of roof access.

Policymakers are seeking to remove or reduce these barriers through financing programs and specific policies or programs designed for low- and moderate-income customers (note that definitions of these populations may vary). Several states’ efforts are highlighted in the case studies below.

Financing

State-supported financing strategies can help direct access to energy-efficient or renewable technology for LMI customers.

Certain financing programs—including energy savings performance contracting (ESPCs), on-bill financing (repayment or recovery), and Property Assessed Clean Energy (PACE)—can be designed to have lower credit score requirements, provide credit enhancements, eliminate the need for upfront capital investments, provide low interest rates or be directed to renters. Energy savings performance contracts are specifically intended for energy efficiency upgrades while PACE, and recently on-bill financing, is available for both renewable and energy-efficient technology.

Another developing tool, state “green” energy banks, are public-private partnerships that combine public funding with private capital and expertise to promote renewable and efficient energy technology. An energy bank can also utilize innovative or new financing arrangements that may be deemed too risky for the traditional banking industry to assume without public support.

For example, Energize NY’s on-bill recovery program offers two tiers of financing based on customer demographics. Tier 1 customers have stricter credit requirements. These lower-risk loans have been bundled and sold on the private market through the New York Green Bank. Tier 2 loans are financed by utilities and eligible to customers who may not meet Tier 1 criteria. Additionally, the program bases interest rates on area median income and lower interest rates are offered to customers with lower-than-median incomes.

More information on the energy efficiency market and opportunities for LMI customers can be found in a report by the State and Local Energy Efficiency Action Network, "Energy Efficiency Financing for Low- and Moderate-Income Households: Current State of the Market, Issues and Opportunities."

LMI Specific Efforts

Rooftop solar panels.States can tailor specific energy efficiency or renewable energy programs to LMI customers’ needs and challenges. For example, “community” or “shared” renewable energy has been identified as policy tool for delivering renewable energy to LMI customers.

Shared renewable energy programs offer an alternative to onsite, “rooftop” solar, allowing multiple customers to invest in a medium-sized renewable energy facility (located onsite or offsite) and directly benefit from the energy produced. These programs provide access to renewables for customers who are unable or unwilling to install solar (or other renewables) on their homes or businesses. The National Renewable Energy Laboratory reports that about 49 percent of households and 48 percent of businesses are currently unable to host a solar photovoltaic system.

In addition to increasing access to renewable energy, shared renewables’ benefits include decreased barriers for participants and siting flexibility. However, unless intentionally designed, programs can still present barriers for LMI customers. One approach is to require operators to satisfy a certain level of low- or moderate-income customer participation and several states with legislatively-established programs have LMI customer carve outs:

  • California requires at least 100 MW of the program’s 600 MW cap to be located in “disadvantaged communities” and program participants must be “reasonably proximate” to the community solar facility that they subscribe to. See more in the California Case Study.

  • Colorado requires that five percent of shares in community solar gardens be for low-income subscribers. Utilities can satisfy this requirement either through set asides for individual CSGs or through creating dedicated low-income CSGs. For example, one planned installation by Grand Valley Power will exclusively serve low-income customers, and eligible participants must be at 80 percent or less of the area median income.See more in the Colorado Case Study.
  • Authorized through 2016 legislation, Oregon’s community solar program requires that 10 percent of the program’s total generating capacity must be reserved for LMI customers.
  • In 2015, New York established a two-phased community net metering program. Phase One, running from October 2015 through April 2016, required 20 percent of community net metering facility subscribers to be LMI customers. Although these requirements [MC1] do not apply to Phase Two, the New York Public Service Commission is investigating policies to increase LMI participation in community renewables programs. One New York utility, Consolidated Edison Inc., has filed a proposal with the PSC to own and host shared solar facilities and offer subscriptions only to low-income customers. See more in the New York Case Study.
  • In 2015, Maryland legislation created a three-year community solar pilot program. The final community solar regulations were approved by the Maryland Public Service Commission in 2016 and include specific carve-outs for LMI customers. The program allocates 30 percent of annual community solar program capacity to projects serving more than 30 percent of output to LMI customers, of which at least 10 percent is specifically dedicated to low-income customers. Additionally, the program allocates 30 percent of annual capacity to “small projects” (500 kW or less) including projects on rooftops, roadways or parking lots, brownfield projects and projects serving more than 51 percent LMI customers.

  • Rhode Island enacted legislation in 2016 authorizing community net metering. Systems must have either at least three subscribers or at least one low- or moderate-income subscriber.

In another instance of LMI-directed programming, the Colorado Energy Office expanded the scope of existing LMI energy efficiency services to include a solar energy option. The state’s Weatherization Assistance Program is the first in the nation to be granted permission by the U.S. Department of Energy (DOE) to use rooftop solar as an approved measure to reduce households’ energy burden. To qualify for rooftop solar assistance, installations must be deemed cost-effective and not exceed a DOE contribution of $3,545. Customers must have high electricity use, limited access to community solar and have a high solar capacity factor to qualify.

State Case Studies

The state-specific case studies below highlight policies or programs that directly address low- and moderate-income customer access to renewable and efficient technology.

California

California operates multiple programs that seek to increase LMI customers’ access to efficiency and renewable energy, and 2015 legislation mandated further study on this topic.

California’s energy-sector cap-and-trade program, established in 2006 and effective in 2012, specifically directs a portion of auction proceeds to low-income communities and communities disproportionally affected by poor air quality and emissions. Cap-and-trade programs establish a cap on emissions and either provide an allotment of emissions credits to regulated entities, or simply require all entities to buy credits on an auction market that was created to trade these credits. Cap and trade programs put a price on each unit of emissions, forcing entities to either reduce emissions or buy credits and offsets at auction from entities that can reduce emissions at a lower cost.

California also operates the California Solar Initiative (CSI) rebate program to encourage greater solar energy adoption. The CSI requires at least 10 percent of funds be directed to low-income residential housing. Legislation enacted in 2006 established a Multi-Family Affordable Solar Housing (MASH) program within CSI. The MASH program specifically offered a per-watt incentive based on the size and the expected performance of a system. Similar to MASH, the California Public Utility Commission created the Single-Family Affordable Solar Housing (SASH) program. The MASH and SASH programs have subsequently been replaced by the Multi-Family Affordable Housing Solar Roofs Program. The state enacted legislation in 2015 that will annually (between 2016 and 2020) direct the lesser of $1 billion or 10 percent of cap-and-trade proceeds for the new Multi-Family Affordable Housing Solar Roofs Program.

The state has also authorized community choice aggregation for multi-tenant properties and local governments, allowing these entities to pool electricity contracts together to lower electricity costs and procure renewable energy.

Colorado

As listed above, Colorado’s community solar legislation requires 5 percent of shares be designated to low-income customers. A 2015 report for the Colorado Energy Office evaluated the state’s LMI commitment, confirming this requirement is being satisfied and identifying additional LMI market potential. One planned installation by Grand Valley Power will exclusively serve low-income customers, and eligible participants must be at 80 percent or less of the area median income.

A recent broad renewable energy settlement between Xcel Energy and numerous stakeholders included multiple new low-income customer-specific offerings, such as a solar rooftop program and a community solar expansion. 

Massachusetts

The state offers a Solar Loan Program that includes several provisions to increase access to financing for “moderate-income” customers for both rooftop and community solar projects. First, annual interest rates do not exceed 3.25 percent. Additionally, the state offers a loan loss reserve to lenders to decrease their risk and allow them to expand their eligibility criteria to recruit participants with lower credit scores. Finally, customers with incomes below certain state median income thresholds may be eligible to have the program contribute 20 to 30 percent in a loan principal buy-down.

New York

Governor Andrew Cuomo’s Reforming the Energy Vision (REV) policy and the New York Green Bank have several initiatives designed to increase LMI customer participation in renewable and efficient energy projects. A pillar of the REV process is seeking to limit low-income customers’ energy burden to no more than 6 percent of household incomes. According to state data, approximately 25 percent of all electric customers in the state are considered low-income.

Additionally, the NY Green Bank and several capital providers have partnered to contribute $340 million for solar energy access for residential customers. A third party company, Sunrun, will assist in the design, installation and financing of rooftop solar to customers, who will receive a predictable price on a systems energy generation for little or no-upfront cost. Another program through the Green Bank will provide for $7.5 million in energy efficiency retrofits for 400 homeowners in the state while guaranteeing energy savings and allowing customers to direct their energy savings as loan repayments (on-bill repayment).

However, several state programs have encountered barriers recently in low-income customer program delivery. First, Governor Cuomo and the Public Service Commission (PSC) halted energy service companies from offering retail utility services to low-income customers based on higher-than-average customer charges for service. In addition, the Department of Public Service suspended efforts to address low-income customer participation in the state’s Shared Solar community distributed generation initiative after no workable solutions were identified for decreasing barriers to greater low-income customer participation. Barriers previously identified include credit scores and debt-to-income ratios required for leases and power purchase agreements, and the up-front costs for loans and purchases of distributed generation resources.