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09/22/2021
Opportunities and incentives to expand solar access to low- and moderate-income (LMI) communities
This content was originally published by EDPR
In the midst of the global climate crisis, many state governments across the U.S. have recognized that access to clean, reliable, and affordable energy is paramount. As a result, renewables – specifically distributed photovoltaic systems (PVs) – are becoming more widespread across the country. State policies and incentives have been designed and updated to aid in the adoption of renewable energy sources. However, a large segment of the U.S. population has historically been left behind.
The challenge
Low- and moderate-income (LMI) communities throughout the U.S. face significant barriers to installing renewable energy improvements, such as lack of access to capital, low credit scores, or lack of homeownership. According to a 2020 report released by the American Council on an Energy-Efficient Economy (ACEEE), 67% of low-income households throughout the U.S. have a high energy burden, meaning that they spend more than 6% of their total income on energy bills. Households with high energy burdens often forgo basic energy needs such as heating and cooling in order to pay for other day-to-day expenses. But with improved access to no- or low-cost energy, this does not have to be the case.
EDPR NA Distributed Generation (EDPR NA DG) took a closer look into the incentives, tax credits, and nationwide programs available to promote low-cost renewables in LMI communities in the U.S. In 2020, CohnReznick LLP, a leading U.S. accounting, advisory, and tax firm, released a mini-brief discussing equity and inclusion in the clean energy revolution. In the brief, they point to a variety of state initiatives intended to help improve LMI communities’ access to renewable energy resources and clean energy job opportunities. The mini-brief also highlights a number of existing financial vehicles that can be leveraged to expand renewable energy access but are often underutilized.
The opportunity
One existing financial incentive that offers an opportunity to expand access to renewables specifically for LMI communities is the Low-Income Housing Tax Credit (LIHTC). Energy insecurity and affordable housing shortages are both pressing issues in the U.S., and EDPR NA DG sat down with Beth Mullen, CohnReznick’s Affordable Housing industry leader and a deeply experienced tax credit advisor, to discuss the intersection of renewable energy adoption and the LIHTC.
LIHTCs are federal tax credits issued to states and then competitively awarded to affordable housing developers for the acquisition, rehabilitation, or new construction of rental housing for low-income households. The tax credits are meant to subsidize the creation or preservation of affordable rental housing by providing investors with a dollar-for-dollar reduction in their federal tax liability in exchange for development equity.
The solutions in action
Recognizing the potential to incorporate renewables into the LIHTC program, many state housing authorities have leveraged the competitive nature of the LIHTC to require that affordable housing projects applying for the LIHTC utilize sustainable development practices. Mullen noted that energy efficiency standards such as water conservation measures, energy-efficient appliances, geothermal heating and cooling systems, and solar energy systems are either becoming requirements in certain states or providing developers with a competitive edge when applying for LIHTCs. Mullen disputed the idea that the costs to “green” affordable housing complexes are greater than the return, and stated that “as solar costs have come down over the years, it has become common sense to integrate solar into any new development.” Costs may seem steep up front, but the long-term savings and health and environmental benefits for both developers and tenants can greatly outweigh those up-front costs, she said.
Additionally, Mullen touched on the point that the LIHTC can be utilized in conjunction with the federal Investment Tax Credit (ITC) to help finance solar PV systems on low-income housing properties. Utilizing both tax credits can help cover up-front costs, and the solar energy systems can reduce or stabilize energy costs for tenants and developers. Affordable housing complexes often have limited roof space or land available to install solar on the property, but community solar could provide a solution. Community solar refers to local solar facilities that generate energy savings for multiple customers within a geographic area. When public or not-for-profit entities are not eligible to utilize the ITC, contracting through a third-party entity such as EDPR NA DG can unlock savings through the ITC and other financing opportunities. On top of the ITC, many states have community solar programs – or plans for future programs – that could help finance community solar energy systems if the savings can be passed on to LMI customers.
The Biden administration, as part of its overarching focus on clean energy, plans to improve on the existing state-level clean energy standards, extend existing tax credits that promote renewables, and develop new financing mechanisms “to maximize investment in the clean energy revolution.” Helping disadvantaged communities is a theme found throughout the administration’s proposed strategy, and with the U.S. Senate’s recent passing of a $1 trillion infrastructure bill, there are plans to build new and resilient transmission lines to expand access to renewables across the country, among other major infrastructure updates. The bill is currently with the U.S. House of Representatives, with a vote due by Sept. 27.
The LIHTC has always received bipartisan support, and coupled with the anticipated clean energy advances, Mullen is “cautiously optimistic” that the LIHTC will “get support in whatever legislation is coming down the road.”Subject matter expertise
Beth Mullen
CPA, Partner, Affordable Housing Industry Leader
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