Community Solar: Lifting the Energy Burden on Low-Income Households
July 2, 2018 by Douglas Gagne
Have you ever stopped before turning up your thermostat to consider whether you could afford the electric bill and still be able to pay rent or buy groceries? For many households, utility bills represent a disproportionate share of their household expenses. The Colorado Energy Office (CEO) defines households as energy burdened if they spend more than 4% of their annual income on utility bills (CEO 2015). Based on research performed by the U.S. Census Bureau and compiled by the CEO, roughly 30% of households in Colorado are energy burdened (Figure 1), and many of these households have expenditures that exceed 10% of their income.
Figure 1. Energy Burden in Colorado (CEO 2015)
State energy offices, such as the CEO, are exploring approaches to reduce energy burden across the U.S. NREL’s Solar Technical Assistance Team worked with the CEO to evaluate their innovative approach: a low-income community solar program.
In 2015, CEO launched a pilot project to demonstrate the feasibility of building community solar programs that were 100% subscribed by low-income households. CEO partnered with eight rural electric cooperatives across Colorado, and ultimately developed almost 1.5 megawatts (MW) of community solar that will serve 380 low-income households over 20 years (Table 1). These households are expected to save 15% to 50% on their energy bills, or $382 on average per household annually.
Table 1. Summary of CEO Low-Income Community Solar Projects (NREL 2018)
As part of the pilot program, CEO awarded grant funding to cover roughly half of the cost to develop the low-income community solar systems, with the participating utilities funding the remaining costs. The utilities then provide a credit on the subscribers’ bills based each subscribers’ allocated portion of the solar generation for the life of the program. The complete transaction structure utilized by the utilities is shown in Figure 2.
In the Business-As-Usual case (depicted on the left) the utility purchases electricity from their wholesale energy provider (Tri-State), and then distributes this electricity to the low-income households and charges the retail rate. Under the Low-Income Community Solar mode (depicted on the right), the utility still purchases most of its electricity from Tri-State, but also generates a portion of its electricity needs from the utility-owned low-income community solar systems. The utility benefits from selling the Renewable Energy Certificates (RECs) generated from these projects to Tri-State, and also reduces its wholesale electricity purchases with the solar energy system. The utility then passes this benefit on to low-income community solar subscribers in the form of a reduced electricity rate.
Figure 2. Utility Transaction Structure Summary (NREL 2018)
CEO published a full report detailing the demonstration program’s implementation and policy implications. As part of this effort, the NREL STAT conducted an analysis focusing specifically on the financial returns for the participating utilities. NREL developed financial models for six of the eight utility cooperative projects and compared their project returns under a business-as-usual case (e.g. if they continued to charge their full retail rates), with their returns under the low-income community solar case. Based on a comparison of these models, the utilities’ returns from the community solar projects are smaller than their returns under the business as usual case. This is because the utilities paid upfront for a portion of the system cost, and also because they are providing bill credits to the low-income households (earning less revenue in the process).
The analysis highlights a balancing act between providing utility bill savings that meaningfully reduce low-income households’ energy burden, while also making sure that utilities make enough money to cover the costs of the project (which may entice them to do similar projects in the future). For example, the utilities that provided a smaller discount of 15% will turn a profit on the project, whereas the utilities that provided a 50% discount to their subscribers will lose money. Through this analysis, NREL identified potential considerations for making future low-income community solar projects more replicable in the future:
- Make projects bigger: Larger community solar projects (over 1 MW) can lower project costs and enable the utility to use tax incentives, but also require utilities to recruit and retain a larger number of low-income subscribers.
- Find and include incentives: The inclusion of federal tax incentives in the projects can significantly improve utility returns. State incentives are another possible funding source. The utilities in the CEO demonstration project were all cooperatives, which meant that monetizing tax incentives (with one exception) was not part of the project structure.
- Partner with third parties: Utilities could potentially partner with a solar developer under a power purchase agreement (PPA) instead of purchasing their systems outright. This would let them save on the upfront cost and allow their investors to use business tax incentives.
- Consider blended community solar membership: The utility project that benefitted the most low-income households (140) only included low-income households as 36% of their total subscriber base. The subscribers that made up the other 64% paid upfront market rates for their subscription, which allowed the utility to afford a much larger, 2 MW system.
The full NREL report can be accessed at https://www.nrel.gov/docs/fy18osti/70536.pdf