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Community Solar Can Better Serve Low and Middle Income Customers: Part 1

Benjamin Retik
Feb 25, 2021

Guidehouse Insights

As investment in renewable energy increases, simultaneous efforts must also be made to expand access to these resources. Residential solar PV is a great option for many but can be inaccessible to low and middle income (LMI) consumers. LMI consumers are more likely to be renters and are less likely to be able to finance the upfront cost of solar installation. Community solar projects with benefits flowing to multiple customers have the potential to address these challenges and provide millions of LMI households with access to clean, affordable energy.

Massachusetts Leads the Way

Many states and utilities already have programs in place that attempt to encourage LMI participation in community solar projects. This is typically done by establishing carveouts for projects and by offering additional tax credits for low income projects. In Massachusetts, for example, the Solar Massachusetts Renewable Target program incentivizes community solar programs that serve low income customers by offering an additional $0.06/kWh on top of the base rate for those projects. Many states have similar policies that aim to encourage LMI access to clean energy, but there remain challenges to LMI participation in community solar that these policies do not always address.

Perhaps the primary challenge to LMI customers participating in community solar projects is that they lack access to capital or do not have enough access to credit, despite the policies that try to make community solar more accessible. The solar industry in the US commonly uses a customer’s credit score as an indicator of their credit worthiness. Of course, that this is common practice does not mean it is a perfect solution.

Is There a Better Way to Measure Payment Performance and Credit Worthiness?

A National Bureau of Economic Research working paper may help us answer this question. In this paper, the authors developed an alternative credit score based on several variables specific to utility repayment performance. They posit utility payment history is better than traditional credit score indicators when it comes to predicting the risk of community solar payment default. The results indicate that using the alternative credit score significantly increased both accuracy and LMI inclusivity when compared to a traditional credit score. The alternative model for payment performance increased the number of LMI applicants approved by 1.1% to 1.9%. Importantly, the same model also decreased the default rate by about 1.5% points, indicating it is possible to extend access to more LMI customers while simultaneously decreasing default risk. These results indicate that it is possible to expand LMI access to clean energy by rethinking how applications are evaluated. That is wonderful news.

In Part 2, I continue exploring how we can use community solar to expand renewable energy access to LMI households.