California’s new solar policy leaves low-income families behind. Community energy providers, nonprofits and vendors have come up with some creative workarounds.
Rooftop solar and home batteries are already too expensive for most low-income California residents. Last week’s decision by the California Public Utilities Commission to radically alter the state’s net-metering policy will put them even further out of reach.
Last week Canary Media explained how California’s new rooftop-solar policy will dramatically reduce the moneymaking potential of stand-alone rooftop solar and incentivize customers to install batteries that can store and shift their output to the grid when it’s most needed. We also explored how solar and battery vendors, utilities, community energy providers and state agencies are looking for ways to expand access to these technologies for low-income and disadvantaged communities.
That won’t be easy. Even after federal tax credits, a typical residential rooftop-solar system in California costs between $15,000 and $25,000, and adding a battery can increase the total by $10,000 to $20,000. Without access to financing or other structures to lower those upfront costs — and without clear pathways to pay those costs back within less than a decade through utility-bill savings and export credits — few low-income households will be able to afford it.
The CPUC’s new rooftop-solar policy offers little to ease those cost barriers for low-income customers. It does, however, open up a potential pathway that could be used to help expand access.
Under the new policy, households with solar-plus-battery systems will be able to earn more money than they could previously for allowing their systems to be used to support the grid by storing rooftop-solar power in batteries and exporting it when power demand is high. And other California policies are incentivizing the adoption of efficient electric-powered heating systems, appliances and other equipment that can tamp down energy usage when the grid is stressed or shift usage to when the grid is awash in low-cost clean power.
Public agencies, private companies and community organizations are pioneering limited-scale programs designed to help low-income households take advantage of these opportunities. Their tactics include finding as many channels as possible to reduce the upfront cost of installing the solar, batteries and efficient electric appliances, and then making those incentives pay off by capturing as many revenue streams as possible for using the equipment to support the grid. Another approach is installing rooftop solar and batteries that are owned by third parties instead of by low-income households, so the households get some of the key benefits — lower electric bills, backup power during grid outages — without the costs.
These kinds of programs are still in their infancy, and it’s unclear if they can get to scale. But models like these are needed for California to meet its policy imperative to expand access to clean energy and efficiency to low-income and disadvantaged communities. In this piece, we’ll explore a few examples.
The barriers to adoption of solar and batteries by lower-income households
First, let’s walk through the challenges involved in bringing rooftop solar to low-income customers in California. Solar nonprofit Grid Alternatives knows the hurdles well, having deployed nearly 10,000 solar systems as the administrator for a series of state-mandated programs that cover the cost of installations for low-income households.
The main state program now financing rooftop solar for low-income single-family homes has a budget of $8.5 million per year. It’s enormously helpful for those customers it serves, but it reaches only a small fraction of eligible households. Those who aren’t served by it face underlying barriers that make rooftop solar and storage even more costly for them than for wealthier families, said Stephen Campbell, Grid Alternatives’ senior policy manager.
For one, “many lower-income customers don’t have the option to finance” a new solar or battery system, he said. Solar financing today is largely structured for customers with higher incomes or better-than-average credit scores. People without those advantages can struggle to obtain financing at all, let alone financing that’s affordable in a time of rapidly rising interest rates.
Some lower-income customers need to repair their roofs or upgrade their home wiring and electrical panels before solar can be installed. Others live in rural areas far from where most solar installers work, complicating the sale and installation process.
Such barriers tend to drive up the cost of serving these markets. The average cost of solar installations for the low-income programs Grid Alternatives manages is $4.28 per watt, well above the $3.30-per-watt average cited by the CPUC’s new rooftop-solar decision.
To overcome these barriers, low-income and disadvantaged households need incentives and financing structures that can defray higher upfront costs and encourage more solar and battery companies to serve those markets, advocates say. They need assurance that the solar-plus-battery systems they’re installing will reduce their electricity bills and give them a clear path to paying back their investments in a reasonable timeframe. And they need help accessing incentives to make their homes and their appliances more efficient.
Revitalizing communities with solar, batteries and more
One example of a program offering this kind of support comes from MCE, the community choice aggregator serving Marin and Napa counties and surrounding areas. This summer, MCE launched a virtual-power-plant program for low-income residents of the economically and environmentally distressed city of Richmond, aimed not only at providing low-cost distributed energy but also at revitalizing its residential housing market.
Community choice aggregators like MCE are city- and county-based entities that have taken over the role of supplying electricity to millions of California’s utility customers over the past decade. Many have also been taking innovative approaches to deploy rooftop solar, batteries, electric appliances and efficiency upgrades.
Backed by a $3 million grant from the California Energy Commission and with a host of corporate, nonprofit and community partners including Grid Alternatives, the Richmond project is targeting up to 100 homes and an undetermined number of commercial sites for solar, batteries, smart thermostats, heat-pump water and space heating, and EV charging.
Participants will get zero-interest loans to finance the equipment and installation costs, plus monthly credits in exchange for allowing MCE to tap that equipment to reduce its need to buy high-priced energy during the peak hours of 4 p.m. to 9 p.m. The program is open to households that currently lack rooftop solar as well as households that have already had solar installed by Grid Alternatives and want to take advantage of that self-generated power to heat their homes or charge their cars, said Alexandra McGee, MCE’s manager of strategic initiatives.
MCE and its partners are also tapping social-impact bonds raised by the city of Richmond to buy abandoned homes and renovate them with solar, batteries, electric appliances and efficiency retrofits. “We are leveling floors, ripping out Sheetrock, putting in new roofs,” McGee said. Plus, they’re installing “all the gizmos — the batteries, the EV charging, the solar panels, the heat-pump water heaters.”
To finance the upfront cost for both newly renovated and existing homes, MCE and partners are “throwing everything we have at this project,” McGee said, including MCE’s existing energy-efficiency and distributed-energy incentives, zero-interest loans for income-qualified homebuyers, and state grants matched by the city of Richmond.
Thanks to this creative use of grants, bonds, incentives and zero-interest loans to get the projects done, the partners will be able to sell the homes at a discount to lower-income first-time homebuyers, she said. And the monthly payments from MCE to homeowners for participating in the virtual power plant will keep down household energy costs. So far, one home has been renovated and sold, and more are on their way, she said.
While the project is still in its early stages, the goal is to aggregate 1 megawatt of solar capacity and 2.5 megawatts of energy storage and loads that can be reduced during times of peak grid demand, McGee said.
“Once that size is reached, that’s where the real value can be realized for MCE,” she said. Much of the power that community choice aggregators (CCAs) deliver to customers comes from contracted clean-energy resources, but they also have to secure additional energy and capacity for those times during the year when grid supply is scarce. That’s the most expensive power, and anything that CCAs can do to hedge against exposure to those high costs — such as enrolling more customers in virtual power plants — can make a big difference.
Sachu Constantine, executive director of the nonprofit Vote Solar, said MCE’s work in Richmond represents a novel alignment of efforts to expand clean and reliable energy with the goal of community revitalization. “It’s a pathway to ownership” of homes for the customers involved. In terms of its value to the grid, “it’s clearly visible to the utility — they can incorporate it into their planning,” he said.
MCE’s project in Richmond is just one of many virtual power plants being developed across the state. Others are run by California’s three big investor-owned utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric — as well as by public utilities including the Sacramento Municipal Utility District and CCAs like East Bay Community Energy and Clean Power Alliance.
Some of these programs offer incentives for a certain number of solar-and-battery systems to go to lower-income customers. How generous those incentives are can depend on the value batteries and other controllable devices can provide the CCAs and their corporate partners — values that can change depending on underlying regulatory structures and shifting energy-market conditions.
It also depends on how the ownership of these assets is structured. MCE’s virtual power plant in Richmond is designed around boosting customer ownership of these assets. Other approaches are putting the costs and risks of owning these assets in the hands of third parties.
Bringing third-party-owned batteries to low-income Californians
For more than a decade, the Self-Generation Incentive Program has been California’s premier policy to help homeowners and businesses afford their own batteries. This summer, state lawmakers boosted the budget for the program by $900 million, with $630 million of that earmarked for low-income customers. Given that previous funding authorizations of the program have already been depleted for the most in-demand portions of the market, that money will likely go fast.
Over the past few years, California regulators have refocused this decades-old program on making batteries available to people most at risk from the state’s increasingly frequent wildfire-prevention power outages. For medically vulnerable customers or disadvantaged communities, the incentives are high enough to cover nearly the entire cost of a new battery installation, allowing partnerships like those between Grid Alternatives and Sunrun and PG&E and Enphase to offer free batteries to customers in high-fire-threat parts of the state.
But that’s just one way to get batteries into low-income customers’ homes. Sunrun also acts as a third-party owner of solar and battery systems that Grid Alternatives installs for customers that can’t or don’t want to borrow money to finance it. Third-party owners can monetize the value of federal tax credits for low-income households that don’t pay a large enough federal tax bill to take advantage of the credits themselves.
Residential battery company Electriq Power is working with the city of Santa Barbara and Santa Barbara Clean Energy, the county’s community choice aggregator, on another version of this third-party ownership model, one aimed specifically at homeowners who lack high-enough credit scores to finance installations themselves.
Despite its reputation as a wealthy coastal haven, the city and county of Santa Barbara are home to many lower-income residents, including those working in the agricultural and service industries, Electriq CEO Frank Magnotti said. The county also has relatively few grid connections to the rest of the state, and many of its longer lines run through areas at high threat from wildfires. Third-party-owned solar-plus-battery systems can help those lower-income residents and help the grid. They reduce demand on overloaded grid circuits and provide backup power when the circuits have to be shut off to reduce the threat of sparking wildfires.
Under Santa Barbara Clean Energy’s Home Power Program, Electriq owns the batteries installed in low-income customers’ homes, and the company has lined up other financial parties interested in long-term ownership as well as the federal tax-credit value of the projects, Magnotti said. Participants will be able to sign up for power-purchase agreements to buy solar from the systems on their roofs at rates that are 10 to 20 percent below utility rates.
In exchange, customers agree to let Electriq tap the battery capacity a certain number of hours per year to serve grid needs, Magnotti said. That grid value will “take a little time to get to enough scale to be meaningful” to utilities, he said. But as the program grows, it could become significant enough to allow what he refers to as “sustainable communities” to enter into bilateral agreements with utilities to defer the cost of building grid infrastructure. (For homeowners who are in a position to buy their own systems, Santa Barbara Clean Energy also offers rebates on solar systems from Brighten Solar and batteries from SimpliPhi, two local companies.)
It’s important to remember that California’s fast-rising electricity rates are being driven up primarily by the cost of hardening utility grids against wildfire risks and building new transmission lines to supply needed clean power. Distributed solar and batteries can reduce those costs if utilities and regulators can devise methods of rewarding their owners and users for deploying them where they’re needed most and using them to provide grid services during key times.
It remains to be seen whether approaches like these can become economically self-sustaining ways to put solar and batteries within reach of a broader range of customers. But for the city of Santa Barbara and its CCA, bringing the distributed clean-energy future to lower-income residents is core to their mission, Magnotti said. “We’ll only do this if we can do it across all customer classes, and not just pick and choose the largest homes.”