How to Fix Solar Power's Inequality Problem

The burgeoning field of shared renewables could help disadvantaged communities, if certain obstacles are overcome.

Image Reuters / Mike Blake
Solar panels generate energy on top of a Multifamily Affordable Solar Housing-funded housing complex in National City, California. (Reuters / Mike Blake)

Clean energy has an inequality problem.

It’s not unique to this sector—cutting-edge technologies tend to be expensive and time-consuming to adopt, keeping them out of reach for disadvantaged communities initially. That’s especially true for rooftop solar panels, which require users to own a roof that receives adequate sunlight. For low-income families, especially those who rent or live in multi-family buildings, the chance to cut their electricity bill by producing their own energy just isn’t feasible.

Lower-income households also typically spend a higher percentage of their income on energy than richer families, so they have more to gain from reducing their power bills through clean energy. Additionally, disadvantaged neighborhoods have a higher risk of suffering from air pollution and other nasty byproducts of dirty power generation, not to mention the effects of climate change spurred by those carbon emissions. That, and the fact that these populations tend to be people of color, brings this into the realm of environmental justice: When the people who are most harmed by traditional energy also have the least access to the benefits of clean energy, there’s a problem.

Shared or community renewable energy sources offer a potential solution. These projects involve an energy installation (usually solar, sometimes wind) that users subscribe to. They get a share of clean energy credited to their bills, even without having to have the panels in the exact spot where they live. The market for shared renewable energy has boomed since its introduction 10 years ago. But this type of energy has barriers of its own that prevent many low- or moderate- income clients from accessing it.

That’s why the Interstate Renewable Energy Council, a group that has long advocated for policies that support shared solar generation, spent the past year consulting a wide range of stakeholders to better understand how community renewables could work better for low- and middle-income residents. Here’s what their report pinpoints as the key obstacles and the most promising solutions.

Unequal distribution

Despite the benefits that shared solar offers for low- and moderate-income households, very few community renewables programs actively include these residents. At a statewide level, Colorado is leading the pack with a requirement that 5 percent of each shared solar project to go to low- and middle-income customers, says Sara Baldwin Auck, IREC’s regulatory program director. Massachusetts, New York, and California are also ramping up shared renewables for low-income earners with financing programs and participation quotas.

Part of the reason is that community solar is still quite a young industry.  As this graph from GTM Research's U.S. Community Solar Outlook 2015-2020 illustrates, the sector has comprised a marginal share of overall solar installations, but is expected to boom in the next five years. As the number of shared solar installations grows it will be easier for low-income customers to hear about it and make the leap of buying into it.

(GTM Research)

Some of the barriers to conventional solar still apply for shared solar, as well, Auck says. Lower income households are less likely to have extra cash or credit available to handle the upfront costs of buying into a shared solar project, and the investors backing a project might get worried if they see a large share of customers as potential risks for defaulting on their payments.

People living in multifamily housing, where electricity is routed through a central meter, need a mechanism to ensure they get credit on their electricity bill for their share of renewable energy produced each month. Landlords likely don’t have a system in place for this, because it wasn’t required before, and they don’t necessarily have an incentive to do so. In affordable housing, where rent plus utilities can’t exceed a certain percentage of income, landlords could even raise rent to capture the decrease in utility payments, effectively nullifying any gain for the tenant.

Lastly, the report describes challenges in education and outreach about shared renewable options. If a project is marketed only in English, it won’t attract customers who don’t speak English. Low-income individuals are more likely to have constraints on their time and internet access—if you’re working multiple jobs to pay the bills, it’s hard to sit down and browse through the dense details of community solar contracts. They also might be skeptical of these programs due to other predatory lending programs that target disadvantaged populations.

For community solar projects to successfully attract lower-income customers, then, the groups behind the effort need to help them overcome the barriers of financing, split incentives, and outreach. “All that has to be addressed proactively, and it usually isn’t,” Auck says.

What to do

First things first, figure out the money. “If you are to accomplish meaningful participation from lower- and middle-income customers in this program, it’s imperative that you have dedicated financing mechanisms in place, Auck says.

The optimal method will vary from case to case. It might include direct incentives for a target population, but that money’s got to come from somewhere. For customers whose problem is not having a high enough credit score, alternative loan arrangements can help. For instance, utilities can offer “on-bill” loan repayment, where a bank fronts the money and the customer pays it back through additional charges on their monthly utility bill. The savings from the clean energy investment might even offset any additional charge for repayment.

A new community solar farm could also arrange for an anchor institution—a well-off business with good credit—to subscribe to a percentage of the overall energy production, and promise to subscribe to more if low- and middle-income customers default on their payments. This lowers the financial risk for developers and lenders and makes it easier to support the project.

States can deal with the split incentives problem by passing laws that require individual customers be credited for their portion of energy generated at the shared installation. Last year, California passed a law stipulating that low-income families in affordable housing get credit on their power bills for shared solar capacity installed onsite.

And for outreach, the report stresses the importance of working with local advocacy groups already active in the community. This helps make sure that the communication about the clean energy project is tailored to the target audience and sensitive to the needs of that particular community, both in medium and in message.

The report itself goes into more granular detail on the options here. The bottom line, though, is that disadvantaged communities probably can’t tap into the benefits of shared solar without intentional decisions by state policymakers; the barriers are just too great. Without robust state action, clean power will simply reproduce the inequities of the past, and that would constitute a moral failure for the clean energy revolution.

About the Author

  • Julian Spector is an editorial fellow at CityLab, where he covers climate change, energy, and clean tech.