There are many barriers to going solar for low- to moderate-income (LMI) communities and homeowners, including access to financing, real and perceived credit-quality issues, inability to fully realize public incentives, education gaps, and contractors’ customer acquisition strategies.
The Connecticut Green Bank is addressing these barriers through its Solar for All program, an exemplary model to bring energy solutions to scale in LMI communities. This unique public-private partnership pairs the Green Bank’s LMI solar financing resources with energy efficiency and solar products offered by PosiGen, a clean energy company that serves LMI communities. The program offers LMI homeowners a solar lease paired with energy efficiency measures, regardless of participants’ income or credit. Since the partnership launched in 2015, over 900 low-income verified households have signed up to go solar, and solar penetration in Connecticut’s low-income communities has increased 188 percent.
Program Background and Development
The Connecticut Green Bank was established through legislation in 2011 and is the country’s first full-scale Green Bank. It supports clean energy deployment across several sectors, including single-family residential homes, multifamily properties, and commercial and institutional buildings. It is a state-supported institution that works with private-sector investors to create low-cost, long-term sustainable financing to maximize the impact of public funds.
In 2012, the Green Bank launched the Residential Solar Investment Program (RSIP) to provide up-front rebates and performance-based incentives (PBIs) for solar PV installations on owner-occupied residential properties through a declining block model. Within two years of launching the RSIP, Connecticut had experienced tremendous growth in its residential solar market, expanding from 16 MW approved in 2012-2013, to 33 MW in 2014 alone. Despite this success, only 11 percent of projects approved in 2014 were located in census tracts with a median income less than 80 percent of the area median income. While the RSIP was successful from the start in stimulating residential solar investment and development, it served few low-income customers.
To rectify this disparity, in 2015 the Green Bank established a unique LMI PBI within the RSIP that was approximately three times higher than the market rate PBI. Because LMI homeowners frequently do not have a large enough tax burden to take advantage of the federal solar tax credit for owned systems, this incentive is available to third-party-owned solar PV installations that serve LMI customers. The LMI PBI enables qualified contractors to offer more affordable pricing to customers. To qualify for the program, contractors must respond to an open RFQ with their proposed product pricing, marketing strategy, and general qualifications. The additional program requirements ensure that Green Bank-supported LMI solar projects will have a positive economic benefit for customers, are able to leverage all available revenue streams, and provide strong consumer protection. In 2017, the total RSIP program budget was $12.3 million, $2 million of which was devoted to LMI solar project incentives.
Recognizing that contractors interested in serving LMI solar markets may face unique challenges, and to spur early market development, in 2015 the Green Bank also issued a solar financing RFP to identify PV system providers for underserved markets. The purpose of this financing opportunity was to help the selected provider(s) establish solar businesses in Connecticut focused on LMI customers and to further ensure that contractors utilizing the LMI PBI would be successful in reaching underserved markets.
PosiGen responded to both opportunities and was approved by the Green Bank to participate in the LMI RSIP and the financing opportunity. Financing from the Green Bank allowed PosiGen to rapidly scale up an LMI-focused solar lease and energy efficiency product for Connecticut homeowners. The Green Bank provided a direct credit enhancement in the form of $5,000,000 of subordinated debt to PosiGen’s Connecticut lease fund, as well as $3.5 million in working capital loans to address timing gaps associated with third-party tax equity financing.
PosiGen’s solar lease and an optional energy savings agreement allows Connecticut homeowners to install additional energy efficiency upgrades and pay for them over time; it is available to customers regardless of income or traditional measures of creditworthiness. PosiGen’s model includes an alternative underwriting approach to qualify customers, and a community-based marketing model that targets LMI communities – two key ingredients to reaching this market segment.
The combination of low-cost Green Bank capital with the LMI PBI provides security to PosiGen investors and enables the company to offer an attractive lease product to customers. PosiGen’s alternative underwriting approach circumvents many of the real and perceived credit-quality issues LMI homeowners face, and a lease offering for LMI homeowners allows customers to receive the full value of the federal investment tax credit in the price they pay for solar.
To further bolster chances of success within Connecticut’s LMI market, the Green Bank provided strategic support to PosiGen on community partnerships, outreach, and general market research. In 2017, Green Bank worked with PosiGen and C+C Consulting to complete an updated Connecticut LMI solar customer segmentation analysis which provided key insights into market segments, size, geographies, and messaging. The Green Bank also worked with Yale University and Experian to analyze a large dataset of Connecticut residents’ credit and financial health. Both of these market analyses helped the Green Bank and PosiGen quantify market potential, hone outreach strategies, target efforts, and measure success.
The subordinated debt and working capital loans Green Bank provided to PosiGen supported the company in attracting over seven times more private investment than the Green Bank’s term financing contribution. These investments have supported a fund of $37 million for PosiGen’s Connecticut solar lease installations. The Green Bank support through the RSIP program’s LMI PBI provides an additional stream of high-quality cash flows that further attracts third-party capital into PosiGen’s Connecticut program. In addition, by driving down the cost of capital through its participation in the financing structure, the Green Bank allows PosiGen to offer a more competitive solar lease product and achieve deeper savings for LMI customers.
Customers who go solar with PosiGen in Connecticut pay $60-$110 a month for a 4.5-8 kW system and receive an average net savings of $450 each year. This equates to over $690,000 in solar savings annually across PosiGen’s 1,540 solar homes, of which 900 are verified low-income.
Connecticut’s Solar for All partnership demonstrates leadership and innovation in the way it tackles multiple barriers to LMI solar access while delivering a product that has real impact on household-level energy burdens. By taking a multi-pronged, strategic approach to addressing many of the barriers and needs of the state’s LMI communities, the Green Bank and PosiGen have created a model that works for Connecticut homeowners and that could be replicated by other states that want to provide solar benefits to LMI customers and meaningful reductions to LMI energy burdens.
Connecticut’s Solar for All partnership was a recipient of a 2018 “State Leadership in Clean Energy Award,” presented by the Clean Energy States Alliance (CESA). You can learn more about this program and other award recipients at https://cesa.org/projects/state-leadership-in-clean-energy/2018/.
CESA hosted a free webinar featuring Connecticut’s Solar for All partnership on August 2, 2018 – slides and a recording are available here.
This blog post was also published in Renewable Energy World.