A memorandum issued by the U.S. Department of Housing and Urban Development (HUD) fixes a long-standing issue preventing hundreds of thousands of low-income households from realizing the financial benefits of solar. The memorandum currently applies to a specific solar program in California, the Solar on Multifamily Affordable Housing (SOMAH) program, but it could pave the way for similar rulings affecting solar programs across the country. The ruling deals with how the economic benefits of solar impact rent payments for residents of HUD-assisted affordable housing.
The issue at stake is a federal housing law requiring that a resident’s share of payments to reside in a federally assisted housing property must equal 30 percent of the household’s monthly income. These payments are defined as a combination of rent and estimated utility expenses, known as utility allowances. The problem has been that when solar power reduces a resident’s electric utility bill (the utility allowance part of their payment), HUD requires that the resident’s rent should increase accordingly – erasing the financial benefit of solar to low-income households. This leaves a large section of the population unable to benefits from the savings solar energy can provide.
In its July 8, 2019 memorandum, HUD addresses this issue in two important ways.
First, it states that the solar credits allocated to residents through California’s SOMAH program are an “incidental benefit” and should not be included in the calculation of the household’s income. This is critical because monthly household income is used to set the 30 percent threshold that residents must pay for their housing. HUD justifies this due to the fact that property owners, not residents, participate in the SOMAH program and the solar credits are linked to a rental unit, not the resident living in the unit.
Second, HUD rules that the solar credits should not be factored into utility allowance calculations. Energy generated by solar systems participating in the SOMAH program is exported directly to the utility grid. This means that the solar system does not directly offset resident electricity consumption and applying solar credits to reduce electric bills is merely an accounting transaction by the utility. Because there is no connection between actual electricity consumption and the solar credits generated through the program, HUD has ruled that the credits should be ignored when calculating utility allowances. (For more on how utility allowances are calculated, see An Affordable Housing Owner’s Guide to Utility Allowances.)
Affordable housing and clean energy advocates have been aware of this utility allowance issue for many years. It was seen as a major problem when California first passed legislation to create the SOMAH program in 2015 through Assembly Bill 693 (AB 693). The $1 billion program to incentivize solar for multifamily affordable housing specifically requires that residents receive a direct economic benefit from solar credits generated through the program. Without this memorandum, HUD-assisted housing, and its low-income residents, would be excluded from participating in the largest solar program for affordable housing in the country. The HUD decision represents a huge win for the advocates who have been working for years on this issue and for the thousands of California affordable housing residents that would otherwise miss out on the financial benefits of solar.
There is, of course, still a lot of work to be done. The memorandum applies narrowly to the SOMAH program, so others will need to petition HUD for similar rulings; and there are still hurdles to over come to bring the economic and resiliency benefits of solar paired with battery storage to California affordable housing. Clean Energy Group has been working with advocates on issues related to storage in the SOMAH program since we released our 2016 report, Closing the California Clean Energy Divide: Reducing Electric Bills in Affordable Multifamily Rental Housing with Solar+Storage. Fortunately, storage -related issues can be solved at the state level and progress is beginning to be made.
Groups in other parts of the country have succeeded in bringing the benefits of both solar and battery storage to affordable housing residents. The residents of Maycroft Apartments in Washington, DC not only received around $40 per month in lower bills thanks to a community solar installation at the property, but they also have access to an onsite resiliency center power by solar+storage, which powers device charging, food preparation, and access to information during grid outages.
In California, legacy regulations and short-sighted policies are preventing affordable housing residents from accessing the full economic and energy resilience benefits of pairing solar with battery storage. This is a major concern for disadvantaged populations in California, as the state has become increasingly plagued by major power outages due to wildfire concerns, along with the constant threat of major grid disruptions from earthquakes. Only policy and regulatory hurdles stand in the way of California affordable housing residents having access to the same energy security as the residents of Maycroft Apartments.