Community solar can help revitalize communities. Here’s how

What does community solar mean for low-income and disadvantaged neighborhoods where residents are struggling to pay their electric bills or are looking to clean energy as a pathway to a good career?

Government agencies, environmental-justice advocates and equity-focused solar developers all have their ideas for how to answer that question. Last week, the World Resources Institute brought together representatives of these groups to explain how they’re working to build community solar projects that can deliver not just carbon-free electrons but also community revitalization.

“A number of years ago, when folks were talking about community solar, they were really talking about a premium product,” said Nicole Steele, senior advisor for equity and workforce at the U.S. Department of Energy’s Solar Energy Technologies Office. ​“They were saying, ​‘I want to make sure my energy is coming from clean energy — I’m willing to pay more for that.’”

“We’re trying to flip that script and say, actually, community solar can be like rooftop solar and reduce your overall utility bill on a monthly basis,” she said, ​“really ensuring there are greater household or business savings.”

Steele runs DOE’s National Community Solar Partnership, the Biden administration’s chief conduit for achieving its goal for community solar to power the equivalent of 5 million households and create $1 billion in energy savings for subscribers by 2025. Hitting that target would require roughly 20 gigawatts of community solar deployment, compared to the approximately 5.1 gigawatts installed as of the third quarter of 2022.

But the sheer scale of gigawatts deployed isn’t the only measure of success, Steele said. NCSP is also one of the Biden administration’s pilot programs for its Justice40 Initiative, its pledge to direct 40 percent of federal climate-related funds to historically disadvantaged communities.

Meeting that goal will require the development of community solar projects that adhere to a number of tenets, Steele said. The first two are fairly obvious — ​“is it accessible by low- and moderate-income households?” and ​“is it ensuring household savings?”

But it also means building projects that offer ​“equitable workforce development” and giving community organizations options to own solar projects themselves, as a way to cement the employment and wealth-building value of these multimillion-dollar investments in the communities they serve.

Breaking the financial barriers

The first challenge is designing community solar programs that are open to lower-income people who’ve largely been locked out of the option of installing solar on their own rooftops. 

The National Renewable Energy Laboratory has estimated that about half of U.S. households aren’t suited for cost-effective rooftop solar, either because they’re renters or because their roofs aren’t a good match for solar panels due to shading, orientation or construction type. But according to Solstice Power Technologies, a Cambridge, Massachusetts–based company that works with solar developers to connect them to customers in disadvantaged communities, the true number is much higher, approaching four-fifths of all U.S. households.

That’s because the biggest factor barring households from getting rooftop solar is that they can’t afford it — or, more precisely, they lack the debt-to-income ratios or high credit ratings to meet borrowing criteria for most solar installers and lenders. A significant number of U.S. households earn less than $50,000 per year, but only 14 percent of the country’s rooftop solar owners come from this group. For the 40 percent of households that earn less than $40,000 a year, rooftop solar ownership is even rarer — only 5 percent of solar owners fall into this category.

Solstice co-founder and COO Sandhya Murali noted that some of the same income and credit barriers to rooftop solar access have plagued community solar. When Solstice launched six years ago, ​“the community-solar products looked like rooftop-solar products,” she said. ​“You needed to sign a 20-year contract; you needed a really high FICO score to participate; there were sometimes four-digit cancellation fees.”

While things are improving on that front, community solar developers still have trouble getting financiers to back projects that are targeting lower-income customers and customers with poor credit scores, she said.

Solstice is working with its Solstice Initiative nonprofit arm on an alternative for the nearly half of Americans who either lack a credit score or have one in the subprime range. It’s called an EnergyScore, and it tracks not only credit history but also a customer’s history of paying their utility bills. Studies have shown that utility-bill history is an effective proxy for how likely customers are to stay current on their solar payments, and similar metrics are being used by solar developers such as PosiGen and some state and local green banks. While Solstice hasn’t yet put the EnergyScore to use with its community-solar developer partners, it’s hoping to start using it soon, Murali said.

“Financing can always be a barrier,” she said. ​“If there are restrictions placed on the projects where they require a FICO credit requirement, or they require a certain offtake mix” of subscribers like commercial entities that limits participation from low or moderate-income customers, ​“that’s kind of defeating what we want to achieve in making community solar the most affordable and accessible form of solar out there.”

To overcome that, ​“financiers have to change how they think about the risk of these projects,” she said. 

Lifting the energy burden

Opening the door to lower-income community subscribers is just the first step, Steele said. For the Biden administration to hit its target of $1 billion in savings from community solar, savings for individual subscribers will have to fall from a current average of 10 percent compared to standard utility bills today to closer to 20 percent. Savings of about 20 percent on electrical bills are typical for people who have rooftop solar systems in states with supportive net-metering policies.

State governments create the rules and regulations for community solar within their borders, and no two states have precisely the same approach. NREL reports that 22 states and Washington, D.C. have policies that support community solar, but the majority of the sector’s growth has come in a handful of states, including Colorado, Maryland, Massachusetts and New York.

These states are among those with policies that incentivize or require community solar developers to seek out and enroll people in lower-income or disadvantaged communities. This NREL chart shows how different state policies have led to different rates of installations and projected deployments serving low- and moderate-income customers as of the end of 2020. 

“There is definitely a wave of [low- and moderate-income]-friendly policy in the states,” Murali said. The Inflation Reduction Act passed in August could help even more: It offers an additional 20 percent federal tax credit for community solar installations that provide at least half of their financial benefits to low- and moderate-income customers, she said, which will come on top of a 30 percent tax credit that’s offered for all solar projects.

Structuring projects to help customers improve energy efficiency and access solar power can also help, said Mary Shearer, executive director of Kentucky Habitat for Humanity. Her state chapter of the nationwide homebuilding charity partnered with Louisville Gas and Electric and Kentucky Utilities to gift shares of a utility-developed community solar project to 10 low-income homeowners, with the target of cutting their electric bills by 30 percent per month.

But even deeper savings were realized by a combination of utility-funded efficiency upgrades like LED light bulbs and insulation and Habitat for Humanity’s ​“deeper home repairs” such as new windows, doors and HVAC systems, she said. Altogether, these multilayered interventions reduced home energy costs by 50 percent per month — a ​“massive” help to those families, she said.

Customer acquisition — the industry term for finding willing customers — can be a significant cost for community solar developers, and processes that make it easier for them to find, vet and approve low-income customers as subscribers are helpful, Murali noted. That’s the goal of a new federal digital platform that will help the more than 5 million recipients of federal Low Income Home Energy Assistance Program funds connect with community solar programs in their region, set to launch next year in Colorado, Illinois, New Jersey, New Mexico, New York and Washington, D.C.

Community jobs and community ownership 

Jobs are another important part of the Biden administration’s community-solar goals, Steele said. As part of its Justice40 guidelines, NCSP is looking for partners that have plans for ​“the creation of a workforce that’s inclusive and intentional, and has a pathway for workers to unionize.”

That’s one of the primary goals of Reactivate, a recently launched energy asset developer with $500 million in backing from impact investment firm Lafayette Square and independent power producer Invenergy.

“We are really focusing on a holistic view,” said Utopia Hill, the company’s head of engineering, procurement and construction. Reactivate partners with local community and government groups to find workers and contractors for its projects, she said. It contracts with woman- and minority-owned businesses, and offers 16-week paid training programs that include ​“wraparound services” such as transportation to and from job sites.

The company also plans to conduct follow-on interviews with workers for years after those projects are complete, she noted. ​“We’re looking at not just jobs, but sustainable careers, so that people have living wages so they can support their families.”

These kinds of commitments help gain community buy-in for projects, Hill said. It’s also important to build trust in communities that may become the targets of less-than-scrupulous developers chasing federal and state incentives, she added.

“Underrepresented communities may get this influx of people coming in and promising things that aren’t true,” she said. ​“They’ve been flat-out lied to before. If certain actors come in there and are not following through on what they say, they’re hurting the industry at large.”

Then there’s the question of whether community groups ought to take on the role of owning community solar projects themselves, Steele said. The Inflation Reduction Act makes solar and other clean energy tax credits more easily accessible to municipalities, nonprofit groups and other tax-exempt entities. Previously those credits were available only to private companies because you had to have tax liability to defray in order to apply them, but now not-for-profit entities can receive the incentives in the form of direct payments from the federal government.

That’s a major shift that could expand community ownership options in the years to come. Carla Walker, WRI’s director of environmental justice and equity, noted that community ownership can be an important way for communities that have suffered from generations of disinvestment to begin ​“building equity and rebuilding wealth.”

“Ownership is a huge topic of conversation,” Steele said. ​“It’s the same with rooftop solar. Do you want to own the solar on your roof, or do you want to rent or lease it, enter into a power-purchase agreement? We want it to be the same with community solar. You have the choice of either owning and building wealth through that business model, or being a subscriber. Again, it’s about choice.”