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Low- and Moderate-Income Solar Policy Basics

Distributed solar photovoltaic (PV) systems have been widely deployed across the United States in recent years and associated costs are falling rapidly. However, access to solar power remains elusive for a large segment of the U.S. population, particularly low- and moderate-income (LMI) communities.


As states aim for higher penetration of clean energy, pressures are increasing to expand into harder-to-reach markets. States are leading the charge in identifying and piloting various approaches to bring the benefits of solar power to LMI consumers. States like California, Colorado, Massachusetts, Minnesota, New York, Oregon, and others have been at the forefront of developing policies and mechanisms to extend solar access to LMI populations. California, Colorado, New York, and Oregon have all enacted low-income provisions as part of broader community solar policies (see section on LMI Community Solar below). Additionally, states like California, Massachusetts, and cities such as Washington, D.C., have implemented an assortment of financing mechanisms and pilot programs designed to extend the benefits of renewable power generation to LMI communities.

At the Federal level, the White House announced a Clean Energy Savings for All Initiative in July 2016, which specifically aims to make 1 gigawatt of solar power available to LMI families by 2020. Non-government entities are prominent players in this space as well – non-profit organizations like GRID Alternatives and the Rural Renewable Energy Alliance (RREAL), among others, are piloting new approaches to LMI solar, which include utilizing volunteers to construct solar arrays and provide workforce development opportunities.

Implementation Issues

There are a number of obstacles impeding LMI access to solar power that emerging policies and programs aim to address. Among the most prominent are:

  • Lack of Access to Capital: By definition, low-income communities have less disposable income, making higher upfront installation costs or community solar subscription prices prohibitive. Low-income individuals also often tend to have lower credit scores, which can make attaining a loan for solar investments difficult. Even in cases where loans are available for community solar purchases (see section on community solar below), they may not guarantee access for individuals with low credit scores.

  • Insufficient Tax Burden: Low-income individuals may not be eligible for (or benefit from) state and federal tax incentives for solar if they do not fall within a qualifying tax bracket or have a high enough tax burden. While tax breaks represent the largest public incentives driving solar PV deployment, they have not been comprehensive in terms of extending affordability to LMI communities.

  • Renter vs. Homeowner Status: LMI communities generally tend to have lower rates of homeownership and are more likely to live in multifamily and affordable housing units, which translate into having less control over decisions about rooftop solar and utilities. Even in cases where LMI individuals do own their own homes, if the homes (and particularly the roofs) are not in good condition, rooftop solar may not be a viable option or the best use of funding.

  • Distorted Price Signals: In some areas, if potential low-income customers are already receiving reduced electricity rates through energy assistance programs, the electricity rate available via low-income community solar participation or subsidized PV installations may be higher than what customers are already paying.

  • Unfamiliarity with Solar Products: Because LMI communities generally have not been targeted for solar investments in the past, and might not be immediately familiar with the benefits of engaging in solar programs, clearly communicating the long-term benefits of solar power can be challenging.

Design Best Practices

To date, public sector participation and support has been critical in extending solar access to LMI populations, though the mechanisms and funding sources have varied significantly. As the LMI solar sector continues to develop, funding approaches are likely to evolve, as well. While the existing pool of research and literature on LMI solar best practices is relatively shallow, several potential financing mechanisms and funding sources are emerging.

Potential Financing Mechanisms to Increase LMI Access to Solar

  • Direct Incentives – Direct incentives include subsidizing the subscription price for community solar or cost of PV systems, supplementing the bill credit the customers will receive, or direct cash payments to community solar facilities serving low-income customers. Under Washington, DC's Affordable Solar Program, for example, income-qualified residents (both homeowners and renters) can receive solar PV installations at no cost. 1

  • Loan Loss Reserve – Under loan loss reserve programs, public funds are held in reserve to cover potential losses that loan providers may incur if a customer defaults on a loan. This can mitigate perceived risk and make it easier for residents with low credit scores to obtain a loan. Through the Mass Solar Loan Program, the state of Massachusetts simultaneously offers loans to moderate income customers to purchase community solar subscriptions and enables lenders to benefit from state-funded loan loss reserve accounts to offset credit risk.

  • On-Bill Financing/ On-Bill Recovery – A common practice in the energy efficiency sector, placing energy-related loan payments directly onto customers' electric bills may offer advantages for both consumers and financial institutions, including fewer bills and transferability (i.e. to a new homeowner or renter). In addressing low-income solar access, on-bill financing can also be easier to understand – customers can see utility bill savings from solar offsetting loan payments – and is not as dependent on credit scores. Grand Valley Power in Colorado offers on-bill financing as part of their low-income community solar program.

  • Revised Underwriting Criteria – Other mechanisms for increasing LMI customers' access to loans and credit include lowering minimum credit score thresholds and/or focusing on past bill-repayment history rather than relying on credit scores to determine customer eligibility.

Potential Funding Sources for States

  • Energy Assistance Programs – The Low Income Home Energy Assistance Program (LIHEAP), a federal program to assist low-income families with costs associated with home energy bills, energy crises, and weatherization, could offer a mechanism for increasing solar access to low-income communities. While there are only a few examples of utilizing LIHEAP funding and low-income solar distribution to date, the topic is gaining attention.

  • Weatherization Assistance Programs – The Department of Energy's Weatherization Assistance Program (WAP) enables low-income families to permanently reduce their energy bills by making their homes more energy efficient. At the state level, California's Low Income Weatherization Program (which draws on LIHEAP funding, among other sources) provides funding for solar installations.

  • Affordable Housing Programs – The U.S. Department of Housing and Urban Development (HUD) is partnering with affordable housing developers to develop on-site renewable energy. The agency's goal of developing 300 MW of renewables to service LMI households specifically includes community solar.

  • Community Development FinancingCommunity Development Financial Institutions (CDFIs) and Community Development Entities (CDEs) are prominent players in developing affordable housing and businesses in LMI communities, and can serve an important role in expanding access to solar in these neighborhoods as well. CDFIs and CDEs can assist communities in accessing other financial mechanisms (such as through the Community Reinvestment Act, New Market Tax Credits, or the Community Development Block Grant program) to increase local solar deployment. In other cases, CDFIs and CDEs can directly facilitate integrating solar into their projects (e.g., affordable housing development).

  • Place-Based Investments – Some states are forging more strategic partnerships to invest in community solar as a means for creating local job opportunities and growing community wealth. Community organizations in California, for example, are identifying "green zones" – areas that currently shoulder high pollution burdens, but could be transformed into healthier, community-driven, environmentally protected areas – and targeting them for California Climate Investment funds set aside for 'disadvantaged communities.' Solar could be a critical piece of these types of place-based programs in terms of promoting both environmental and economic benefits.

LMI Community Solar

Community solar has broad applicability — factors like shading and inadequate roof conditions make residential solar systems unsuitable for nearly three-quarters of the residential rooftops in the U.S., making community solar an attractive option regardless of income level. However, within the wider shared solar market, several jurisdictions have begun exploring community solar specifically as a mechanism for expanding solar access to LMI communities. As discussed in a previous NREL STAT blog post, four states — California, Colorado, New York, and Oregon – have enacted low-income carve-outs as part of their community solar policies. Colorado, New York, and Oregon mandate certain percentages of low-income subscribers, whereas California requires 100 MW of their 600 MW solar program to be located in "disadvantaged communities," though the policy does not specify whether subscribers themselves must be low-income, or whether siting community solar in these areas alone meets that requirement.

Ten people pose for a photo smiling and with their hands up.

NREL employees volunteered with GRID Alternatives to install solar PV systems in Grand Junction, CO last year. Utilizing volunteers reduces system installation costs, and systems can then be offered at lowered prices.

Challenges and Next Steps

The LMI solar policy landscape is evolving rapidly as all levels of government are experimenting with various policies and financing mechanisms to expand access to solar power. In spite of this increased attention, though, extending solar access to LMI communities remains challenging. Washington, DC's Affordable Solar Program, for example, is fully subscribed in the current round at 140 residences, but potential for expanding the program may be limited absent additional funding for the direct incentive. On the community solar front, New York and Colorado have tried different market support mechanisms and encountered challenges in addressing market needs, leading to program redesign and, in some cases, de-emphasizing the LMI market. Multifaceted approaches that simultaneously address the myriad challenges that LMI communities grapple with in pursuing solar power may offer a path forward.

Additional Resources

1. In Fiscal Year 2016, the program was fully subscribed with funding to outfit 140 homes with solar installations (rebates are capped at $2.70/Watt DC and issued directly to project contractors). The program is funded by the Washington DC Department of Energy and Environment (DOEE) and is jointly administered by DOEE and the DC Sustainable Energy Utility (DCSEU). DCSEU was created through D.C.'s 2008 Clean and Affordable Energy Act, which also established a Sustainable Energy Trust Fund, financed via a surcharge (currently $0.0015 per kilowatt hour) on all D.C. electric and natural gas utility ratepayers.