At its core, community solar is a vital and much-needed means of democratizing the benefits of renewable energy. While many Americans may not pay much attention to utility bills, for low-income households, this is far from the case. Residential energy consumption surveys conducted every five years reveal that one-third of Americans face energy insecurity, leading them to make difficult choices between heating or cooling their homes and buying food. Shockingly, there are up to 39 million people in the United States who live under a roof that may be perfect for solar, but will find it almost impossible to capitalize on it. That’s almost 13% of the population and over 230,000 acres of roof space that stands to be excluded from the solar revolution.
For those who live in multi-family properties, rent an apartment, or otherwise can’t put solar on their roof, subscribing to a community solar garden offers the only option to benefit from clean, reliable, and affordable energy. Thanks to the passage of the Inflation Reduction Act (IRA), the Internal Revenue Service (IRS), the Dept. of the Treasury, and the Dept. of Energy (DOE) have launched programs to incentivize developers to build community solar projects that are either located in low-income communities or directly benefit low-income residents. Assuming states have enabling legislation to deploy community solar projects, the Low-Income Communities Bonus Credit Program creates the financial mechanisms to incentives these solar developments. For solar projects installed on affordable housing and benefiting low-income residents, the bonus credit program offers a 20% competitive boost on top of the existing 30% investment tax credit for qualified wind or solar energy projects in low-income communities.
On paper, it’s clear that the federal government is committed to making solar energy more accessible for impoverished and underserved communities. It appears that with these initiatives, access to solar energy could finally become a reality for historically marginalized communities.
But will these low-income subscribers actually realize the desired benefits?
While I hope I am very wrong, I believe this program is doomed to fail because the IRS and Treasury did not fully appreciate the practical realities of how community solar works through the lens of low-income participation. And because of this, low-income households will not realize the promised financial benefits from community solar.
Let’s delve deeper into the challenges that these low-income households will unfortunately face. I will provide a detailed account of the problems in part one, but don’t fret — I offer solutions in part two, so stay tuned!
Understanding how the community solar industry makes money
Before we unpack the reasons why low-income households will face challenges in realizing financial benefits, we first must appreciate how community solar actually works in many states. The monetization of community solar credits is the fundamental economic driver of community solar projects, i.e., subscriber receives a credit reducing their utility bill by $100, and pays the solar project owner $80 for that value, realizing $20 in savings or a 20% discount. The collection of these payments is the revenue that allows the solar developer and the owner/operator of the community solar garden to pay its contractors, service its debt and realize a return on the investment. If the community solar credits are not monetized, i.e., subscribers are not paying 80% for the value of such credits, those participants must be removed from the community solar project and replaced with participants that will pay for their monthly credits. This is a fundamental requirement to ensure the long-term financial viability of the community solar garden.
Questionable guidance for equitable energy access
To ensure low-income residents truly benefit from community solar, the program rules should have removed barriers of entry and eased the burden on those it was designed to help. Quite the opposite occurred, unfortunately.
Here are several examples of how the most recent rules imposed by the IRS and Treasury will prevent low-income households from subscribing to community solar gardens:
Self-attestation was banned
Despite the insistence from the majority of community solar providers, the IRS prohibited the use of self-attestation as an approved method to qualify low-income residents. Rather, the IRS now requires that low-income individuals provide evidence of their low-income status, such as tax returns or EBT cards. Asking for this sensitive information can be deeply uncomfortable and even dehumanizing, which seems contrary to the overall objective of making solar more inclusive. This requirement, frustratingly, further ignores the lessons learned in mature community solar markets which required the inclusion of low-income participants. For instance, New Jersey and Maryland had banned self-attestation in its initial community solar pilot programs, only to reverse course and emphatically support the use of self-attestation to qualify low-income subscribers in their respective final community solar program rules. It is a perverse outcome when we place more burden on those that have the greatest need.
The final program rules do indicate that self-attestation will be permitted in states that allow for self-attestation under their individual programs, but it is unclear why this distinction is material. Why is a low-income individual from Maryland permitted to verify by self-attestation (since Maryland allows self-attestation), but a low-income Rhode Islander is not? The IRS notes in its final rule that self-attestations are “not sufficiently reliable or verifiable,” but yet allows those exact same self-attestations if the state program allows it. I am still scratching my head on that logic.
Unbanked and underbanked households are disadvantaged
In those community solar markets where subscribers must pay for their credits, a distinct question remains, how will low-income subscribers pay for these credits? Traditionally, subscribers have been required to provide a credit card or checking account details during enrollment to ensure efficient payment processing. However, qualified low-income households are often unbanked or underbanked, meaning that they do not have credit cards, debit cards or checking accounts to pay for their community solar credits.
With an inability to access financial instruments that are customarily used for community solar subscription payments, low-income households and the community solar provider must use other methods of payment that are burdensome and prone to defaulted payments. This might include requiring the low-income household to mail cash to the community solar provider or travel to a designated location to deposit payment. Asking these low-income participants to take these actions adds encumbrance, cost, risk and loss to the process, making it extremely challenging for these households to realize the financial benefit.
“Balanced” or “budget billing” can be incompatible with community solar
Many utilities have “budget billing” or “balanced billing” programs that allow households to pay a fixed amount each month, regardless of how much energy they actually use. These programs provide a tremendous benefit to low-income and fixed-income households as it allows them to have the security of knowing exactly how much their monthly electric bills will be. Fixing the amount owed provides stability, transparency, and administrative ease for these individuals and families.
Unfortunately, in most states, community solar is incompatible with balanced billing programs. Whether it be technical limitations, internal challenges or both, many utilities are unable to offer balanced or budget billing options to community solar subscribers.
Given this reality, the household that participates in a balanced billing program and also wants to subscribe to community solar has two choices:
1) They can unenroll from the balanced billing program — meaning their monthly utility bill will no longer be fixed and will now be variable based on their usage — and then have community solar credits applied; or
2) They can participate in both, but essentially pay double each month for their energy spend the first year. They would pay the utility the predetermined fixed amount based on their historic usage, and then also pay for the value of the community solar credits applied to their account. After the first year, the utility would then reduce the balanced bill amount accordingly.
Honestly, neither of these “solutions” work for low-income households.
In the first option, the expectation that low-income households would willingly unenroll from the very programs that offer them financial surety is preposterous. For the subset that is determined to subscribe to community solar, Treasury rules require low-income households to unenroll from balanced billing so they can subscribe to the community solar garden. Clearly that requirement reduces any real chance that LMI households would be interested in participating.
In the second option, the participant will eventually realize the value of the credits, though this process may take up to twelve months. That said, we have found no participant, low-income or otherwise, wishing to pay double for electricity for a year.
Limited means to distribute financial benefit
While I cannot fathom that any of this was Treasury’s intent, the crux of these issues originates from Treasury’s definition of “financial benefit.” In its final rule for community solar projects (Category 4), Treasury required that financial benefit can only be delivered as utility bill savings. This definition provides a single means of meeting the requirement to distribute financial benefit to low-income households. The problem with this singular method is that it ignores the aforementioned challenges when low-income subscribers receive bill credits and need to pay for them at a discount.
In the current model adopted by most states for community solar, households receive two bills: one from the utility with the community solar credits applied, and one from the community solar subscription provider that delivers those credits at a discount — required to be 20%. Then the subscribers have to pay out of pocket for credits. Keep in mind that the concept of “paying for credits” is a significant deterrent to low-income families (and frankly, has been a deterrent for families at any income level).
Treasury failed to look at these rules through the lens of the low-income community solar subscriber. If Treasury played out community solar participation from the perspective of the low-income individual, they would have understood that limiting the delivery of financial benefit utility bill savings would create meaningful risk and challenges to that low-income individual. If a low-income subscriber must pay for the bill credit, but they don’t have a bank account or credit card to pay for it, and to get that bill credit, they have to unenroll from balanced billing — is the delivery of this “financial benefit” really a financial benefit to them? In a nutshell, Treasury has structured the entire program around a financial benefit that will never materialize for those that need it the most.
Impact of default and debt on low-income households
Since the required method of delivery of financial benefits can only be made through the payment for bill credits, a meaningful question arises: What if the low-income household can’t or doesn’t pay for that bill credit? Since the underlying economic viability of a community solar project requires the monetization of credits, the low-income customer who has not paid will have to be unceremoniously removed from the community solar project. The low-income participant will be told they are in default, and they now have a debt owed to the community solar developer.
This is a disappointing but fundamental reality. We know that low-income communities will come to community solar with great skepticism, especially when the value proposition of guaranteed savings seems too good to be true. So, when low-income households do buy-in, but then are subsequently removed from the project for failure to pay and are no longer eligible to receive that promised savings, the initial skepticism is validated. I already feel the pain in my chest for those future conversations we will have with those defaulted low-income subscribers.
And defaults will unequivocally happen. Low-income customers will inherently have difficulty paying a variable community solar credit amount each month in addition to the other challenges they face in participating. I struggle with how these outcomes were not considered in the drafting of these rules.
When you take all of these challenges and risks in totality, you can see how the grand intentions of delivering financial benefits to low-income households will not be realized. That will be huge disappointment.
So far, we’ve dug deep into the issues that plague Treasury’s rules for low-income bonus tax credits. At this point you may be thinking that this program truly is doomed to fail, but it’s not, so long as there is willingness to iterate on these rules, and to consider the practical realities of low-income participation in community solar. The Biden administration has put a great deal of rigor around clean energy policies by opening the rule-making process to industry input and counsel. The dual mission of propelling renewables development forward and benefitting the communities that desperately need equitable energy access should be reachable. In this case, the former was certainly accomplished, but not the latter.
In my next column, I’ll provide suggestions for pathways to improve this program and showcase how certain states have implemented rules to actually deliver financial benefit to low-income households. The good news is there will continue to be opportunities for change! The IRS and Treasury rules are not set in stone, and they apply to 2023 only. There will be an opportunity to revisit these rules in 2024, particularly when they prove ineffective. Which they will. So, stay tuned.
In the interim, I welcome any and all comments or questions. Our overarching goal is to make clean energy accessible to everyone. And for that to happen, we need a complete paradigm shift. By encouraging the IRS and Treasury to adapt rules that appreciate real-world implications, we can advance the broader mission of community solar and ensure the benefits are truly realized by those in most need.
Let’s do that together.