‘A matter of life and death’: Financing that gets energy resilience to low-income communities that need it the most

When power went out across Puerto Rico a year ago during Hurricane Maria, the lights stayed on at Casa Pueblo, a grassroots environmental nonprofit in the small mountain town of Adjuntas. People who had lost electricity came to the center for news and to charge their phones and, in some cases, receive respiratory therapy and dialysis.

All this was possible because Casa Pueblo, which has run on solar power since 1999, had installed a microgrid of photovoltaic (PV) solar and energy storage back-up, allowing it to “island” itself, and not only in emergency situations. The organization has a radio station, Radio Casa Pueblo, a library and a movie theater that run entirely on solar.

In the aftermath of the storm, Casa Pueblo leveraged multiple donations from mainland institutions to mobilize a massive deployment of solar and energy storage. It distributed 14,000 solar lamps and installed solar PV with storage on the homes of residents with medical conditions requiring refrigerated drugs or other special treatment.

In an interview with reporters, Alexis Massol González, one of Casa Pueblo’s leaders, said, “This was a matter of life and death. The roads were closed; there was no way to get to the hospitals. That project saved lives.”

Adjuntas is not a wealthy town and, while obviously savvy and highly effective, Casa Pueblo is a small organization. But, clearly, the model it has created could bring the benefits of resilience and distributed energy to low- to moderate-income communities across the United States.

The problem is that solar and energy efficiency are not getting to the people who need them the most, namely families with low- to moderate-incomes. The barriers here are well-known. Low-income families either rent or live in older, inefficient homes, and end up paying more of their disposable income for electricity compared to families with higher incomes. The National Renewable Energy Lab (NREL) reports these families frequently have lower credit scores and cannot afford the high up-front costs of solar.

The need to bridge the gap in access to solar, storage and other distributed energy resources remains a compelling issue for the industry, and solutions are emerging. While many challenges remain, innovative financing programs for efficiency and solar are helping low-income families navigate some of the credit and up-front cost barriers. Cooperative banks in Puerto Rico, property assessed clean energy (PACE) financing in Florida, and the Connecticut Green Bank are providing models of how to leverage public and private funds to better protect low-income communities from the impacts of extreme weather.

Financing Energy Resilience in Puerto Rico

Puerto Rico has a much higher percentage of low-income residents compared the mainland United States. The number of persons living below the federal poverty line — currently, $25,100 for a family of four — was 43.5 percent on the island, compared to 20.8 percent in Mississippi, a state with one of the highest poverty rates in the country, according to the most recent figures from the U.S. Census Bureau. On top of that, many island residents must also contend with a relatively high cost of living and residential electricity prices that, at 18.38 cents per kilowatt-hour (kWh), are higher than the U.S. average of 13.15 cents/kWh.

As a result of the hurricane and high electricity prices, many Puerto Ricans are interested in installing solar, storage and solar-powered appliances that will work after a storm — if they could find affordable financing to cover the upfront costs.

Cooperative savings and credit banks, owned and operated by the communities they serve, offer one option. These “cooperativas” provide vital financial services, such as low-interest general consumer and home improvement loans, to more than one million primarily low- to moderate-income Puerto Ricans. Each of the 117 cooperatives in Puerto Rico can set its own underwriting rules, which tend to be more flexible than those at traditional banks. A number of them also offer solar loans for their consumers.

Located in Caguas, the third largest city on the island, the Jesus Obrero Cooperativa de Ahorro y Credito has provided solar loans for six years. Following Maria, the cooperative teamed up with the University of New Hampshire’s (UNH) Carsey School of Public Policy to develop a financing model for a solar plus storage kit for low-income families. UNH donated a demonstration solar kit to a house that had been without power for six months. The solar kit, which can operate in island mode, can keep the lights on as well as provide power for a washing machine, refrigerator and computer after a grid outage.

While a virtual life saver, the kits cost about $9,000, a significant obstacle for many. “Interest in solar has been sky high since the storm. But so too has the feeling of risk for people on investing in solar,” said Eric Hangen, a research fellow at the Carsey School.

Other companies on the ground, such as Puerto Rico-based inverSol, are offering smaller-sized solar plus storage products with financing through Jesus Obrero. Financing for solar can be found at other coops as well. BoniCoop, located in Aibonito, offers financing for solar PV from 3.99 percent to 7.99 percent over 15 years for applicants with a credit score of 625 or better.

Aurelio Arroyo, Executive Director of Jesus Obrero, says that solar is “one of the few opportunities you have to grant financing that gives immediate savings to the person.”

Keeping PACE in Orlando

Though sometimes affected by hurricanes and tropical storms, Orlando has also become an epicenter for climate migration. Homeowners in Florida’s coastal communities are selling their homes and moving to the inland city. After Maria, up to one thousand people a week were resettling in Orlando. One report estimates the city could see 460,000 climate refugees, many from South Florida. Additionally, around 20 percent of Orlando’s population lives below the poverty line, while the state average is 14.7 percent.

The influx of climate refugees and an elevated poverty level underscore the benefits of Green Works Orlando, a program established by Mayor Buddy Dyer in 2007, aimed at making Orlando a model sustainable city. Green Works Orlando develops action plans for municipal and community sustainability, and coordinates energy and efficiency programs that serve residents of Orlando, including low-income families.

On the community level, low income families have three main efficiency and clean energy financing options available to them.

First, Efficiency Delivered, is a rebate and incentive program operated by the Orlando Utilities Commission (OUC), the city’s municipal utility, primarily targeted at low- to moderate- income households. The program offers single-family households, including renters, who have OUC accounts in good standing, with rebates of up $2,000 for energy and water efficiency upgrades, such as attic and ceiling insulation, caulking and window film.

The second program is property-assessed clean energy, or PACE, financing. Originally developed in California, PACE offers a special value proposition for lower-income households. In addition to not requiring a credit score and removing the barrier of high up-front costs, the savings from home improvements for energy efficiency or solar can exceed repayments, providing an immediate positive cash flow.

From fall 2016 to the end of 2017, 78 mostly residential projects, totalling over $1.5 million in value, were financed through PACE in Orlando. About one-third of the projects were energy efficiency upgrades, while a third targeted climate resilience, and a final third, solar PV.

PACE does have significant constraints for some low-income families — for example, it is limited to homeowners with a certain level of equity in their homes, a good mortgage payment history, and enough income to pay the debt.

The value of the home or home equity provides the basis for the loan, which is then repaid over 5 to 20 years through property taxes. Another caveat, due to federal regulations, in most cases PACE financing can affect the sale of a home — requiring the loan to be paid in full before a sale or some similar arrangement made between the seller and buyer.

The third program, Solar Energy Loan Fund (SELF), was established in Florida in 2010 with the help of a Department of Energy block grant of $2.9 million. SELF is a Community Development Financial Institution nonprofit that, like PACE, offers low-cost financing to lower energy bills and does not have a minimum credit score requirement. Loans do require home ownership, but not home equity. The loans are low-interest, and repayment can be stretched out to seven years. In of 2016, SELF provided over $5 million in loans for home energy upgrades for over 600 customers, two-thirds of whom were low- to moderate-income households.

Connecticut’s Green Bank

In October 2012, Hurricane Sandy hit Connecticut with 85-mph winds and a nine-foot storm surge. The storm left 650,000 residents without power, some for more than a week, and in its wake, the state launched a series of initiatives aimed at building resilience across its communities.

One of those projects, the Connecticut Green Bank (CGB) was established by the state’s General Assembly in July 2011. The nation’s first green bank, the CGB works with private-sector investors to develop low-cost, long-term financing. This approach  includes funding programs that deliver solar PV to low- to moderate-income communities. In contrast to the cooperative model in Puerto Rico, a green bank leverages public dollars to attract third-party partners and generally works with those private partners rather than directly with individuals.

According to the bank, in 2016 it deployed $6 in private capital for every public dollar invested. The model has been replicated in California, Hawaii, New York and Rhode Island.

However, a 2014 review of the bank’s Residential Solar Investment Program found that only 11 percent of of the new projects it was financing were in low- to moderate-income areas. Looking to improve those numbers, CGB launched a new incentive —  the Solar For All program — operated in partnership with PosiGen. The program offers residents in the state — both low-income and others — a combination of energy-efficient home improvements and a solar leasing option; no income or credit checks required. Started in New Orleans after Hurricane Katrina, PosiGen owns and maintains the solar systems, while the customers save money on their electric bills.

The program is designed to keep solar costs low through two CGB initiatives — an upfront rebate for those who buy their systems and a performance-based incentive for those who lease. Both incentives are paid to the installers, who pass the savings through to the customers.

Second, the bank provided PosiGen with $5 million of subordinated, or non-primary, debt financing (hence, lower priority repayment in the case of default) and $3.5 million in working capital to expand its solar leasing program in the state. PosiGen has been able to leverage this funding to bring in seven times more dollars in private investment, growing the fund for its solar installations to $37 million.

According to CGB estimates, customers participating in Solar For All will save 20-30 percent on utility costs over the lifetime of their contracts with PosiGen. The program has increased solar adoption in Connecticut’s low-income communities by 188 percent. As of May 2018, the partnership has installed 1,540 solar PV systems totalling 9 MW in capacity, and 63 percent of those installations were on the rooftops of low- to moderate-income homeowners.

For its Smart-E loan program, CGB partners with area banks to provide no-money-down, low-interest loans for energy projects. With interest rates starting at 4.49 percent, Smart-E is similar to Florida’s PACE and SELF programs. It also allows customers to finance distributed energy like solar PV or energy storage.

The downside here is that whereas Solar For All offers customers access to solar and efficiency products regardless of income or credit score, low-income families must apply for the Smart-E program though CGB’s partnership with Energize CT and local lenders. According to NREL, the drawbacks of loans like Smart-E are private lenders’ willingness to underwrite applicants with lower credit scores, the ability of a homeowner to afford interest and accept risk of non-payment, and the possibility that interest payments will exceed savings.

An obvious next step

Hurricanes, tropical storms, floods and other extreme weather impact people across the income spectrum, however — studies have shown that low- and moderate-income families often are more vulnerable and have fewer resources to recover. As organizations and nonprofits continue to develop innovative financing models for energy resilience for these communities, the focus should be on models that are rooted in the needs of individual geographies and demographics, and can leverage public and private dollars.

Solar prices are falling and more institutions like CDFIs and green banks that provide financial backing for low-income communities are seeing very promising results. With solar prices expected to reach 9 cents/kWh by 2030, ensuring that the benefits of low-cost solar are accessible to low- and moderate-income families is an obvious next step for increasing social equity and resilience in the U.S.