While energy-storage technologies are becoming an increasingly viable option, storage for solar (solar+storage) is mostly serving only high-end commercial markets. However, since this combination reduces costs and increases resilience, this emerging market is uniquely positioned to greatly benefit low-to-moderate-income (LMI) communities. The challenge is: how can we make it financially viable for this underserved demographic?
Robert Sanders and Lewis Milford of Clean Energy Group identified solutions to this question in their recent report, “Resilient Power Capital Scan: How Foundations Could Use Grants and Investments to Advance Solar and Storage in Low-Income Communities.” The report explored funding opportunities to position solar+storage for LMI residents – exploring investments, educational tools, technical assistance, and policy innovations.
“It was through working with portfolio managers and developers over the last three years that we began to witness the significant barriers in the low-income communities. However, on the flip side, we also became aware of the opportunities for market participants,” said Robert Sanders, senior finance director at Clean Energy Group.
Storage for solar is not just a mechanism for advancing the deployment of clean energy. It’s also a social equity tool. When paired with solar, storage could provide significant reductions in energy bills for tenants in affordable housing. This is equivalent to and can even exceed energy-efficiency savings.
The report uses the example of a multi-family house in California, outlining how solar+storage could reduce annual electricity costs by about 99 percent – from $22,000 to just $300 a year.
Clean Energy Group started working on this project following Hurricane Sandy as a means of accelerating more resilient energy solutions. “The most direct impetus for the solar and storage work was [Hurricane] Sandy, which demonstrated the fragility of the electricity system – a lot of diesel generators failed. Solar+storage has mostly been used for demand-charge reduction and peak-load reduction and is motivated by policy and incentives. Our work is positioned to see if we can accelerate the technology arc so these systems benefit those that need them the most,” said Lewis Milford, president of Clean Energy Group.
Out of the barriers that are already present in emerging markets, financing for low-income residents presents additional challenges.
This report – which is part of the Resilient Power Project – identified five of the most prominent barriers to the implementation of solar+storage for LMI residents. These include the need for an integrated development-finance model; a lack of internal capacity; insufficient information on how to advance technological development; the need for more market players; and inadequate market rules, incentives and policies.
“There are typical early-stage-market problems – you don’t have a mature market for it and people haven’t figured out how to finance it,” Milford said. “Second, we’re trying to figure out how to make it equitable. That’s not typically how these things go. The early-stage market is hard enough – and we are facing a greater challenge by trying to make it equitable.”
To reconcile these barriers, Sanders and Milford proposed 50 grant and investment interventions related to financing mechanisms, capacity building, data collection, supportive policies, developer resources, and other ideas.
One barrier the report outlined is the challenge of credit checks for LMI residents. Lease financing and third-party ownership structures are anticipated to be as important for battery storage as they have been for the acceleration of stand-alone solar.
While leased systems are useful for commercial markets with high demand charges and some residential customers, credit checks for leased systems are a challenge for low-income residents. Also, there isn’t dedicated credit enhancement for commercial banks, CDFIs, or green banks to leverage these sources of capital. Credit enhancement and other financial incentives are necessary for developing solar+storage options for low-income communities.
In addition, guarantees and other financial options are not available that could reduce technology and performance risk for financing entities, portfolio owners, and project developers.
Since solar+storage is an emerging market, the report proposed creating a source of five-year project financing or credit enhancement so third-party project developers can prove out the benefits of solar+storage until utilities can gain approval to own the systems themselves.
The authors also recommended providing credit enhancement to property-assessed clean energy (PACE) investors using loan loss reserves or subordinated financing. They suggested providing capital for a predevelopment loan pool.
To attract investment for this sector, Clean Energy Group proposed creating a legal entity that can aggregate multiple portfolio owners’ tax credits to create a scaled investment opportunity. Other recommendations included incentives for lenders – such as paying lenders 50 percent of the underwriting fee at closing.
Another hurdle is the current lack of regulatory and policy support and incentives. Although incentives are starting to emerge, such as California’s allocation of $1 billion for solar+storage for affordable housing, increasing policy support and additional financial incentives will be critical to this success of this market.
In addition, Milford and Sanders said foundations from both the climate and equity sectors can play a meaningful role in spurring change in this space, supporting a range of issues including information gathering, data support, company expansion, and policy innovation.
“The key is to have broader philanthropic support for the LMI solar and storage market and greater participation from clean energy and social equity advocates,” Sanders said. “We can’t do these actions alone. Getting the market rules and policies right will require some strategic investments, support, and a groundswell of demand at the local level.”