How to Overcome the Credit Score Barrier to Sell Solar Energy

In this episode, Vero Bourg-Meyer of the Clean Energy States Alliance discusses the barriers that keep lower- and medium-income customers from installing rooftop solar, the types of efforts most likely to overcome these barriers, and how to keep momentum moving forward.

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Text transcript:

David Roberts

For all its explosive growth in recent years, rooftop solar is far less frequently installed by low- and middle-income households than by wealthy ones. Though that disparity is diminishing somewhat over time, it remains large.

The barriers keeping lower-income consumers from solar go well beyond the financial (though financial barriers are substantial), ranging from credit histories to low-quality and poorly insulated buildings to lack of supportive policy.

State policymakers, foundations, and non-profit groups have been trying for years to overcome this problem. Finally, the pieces are beginning to fall in place and it is becoming clearer which kinds of interventions work and which kinds don’t.

No one knows more about the history, design, and successes of these programs than Vero Bourg-Meyer of the Clean Energy States Alliance. She has been analyzing and advocating for these policies for years (she just came out with a report on how foundations can help), so I was eager to talk to her about the rationale for low-income solar programs, the features that make them work, what's in the Inflation Reduction Act that can help, and what further policies are needed.

Okay, then, with no further ado, Vero Bourg-Meyer, welcome to Volts. Thank you so much for coming.

Vero Bourg-Meyer

Well, thank you so much for having me. I'm delighted to be here.

David Roberts

Cool, so there's a lot to talk about here with this topic, which I've had sort of, like, in the corner of my eye for years and years now, these programs for low-income and mid-income solar, getting solar to low-income, mid-income people, I sort of had it on my periphery forever. And so I'm happy to jump in directly. My sense of the sort of state of play among the wonks is the best way to help poor people is to give them money. And if you have money to help them and you want to do something other than just give it to them, you need to sort of justify, like, why is this better than just giving them money?

Vero Bourg-Meyer

Yeah.

David Roberts

So I guess to start with, my first question is just why should we care about specifically getting solar on these households versus just helping them with money? So what is the sort of justification for this kind of whole area? Why do we want to get solar on low- and middle-income households?

Vero Bourg-Meyer

Well, so there are two questions in there, right? So one question is that there's a climate question. Obviously, we want solar not because we think it's great for savings and all that, but also because we have a climate crisis that's ongoing and we need to do something about this. So that's the reason why we want solar. But why LMI communities and I'll use LMI in a kind of loose way. LMI stands for low- and moderate-income. LMI sometimes is just low-income and that generally means kind of in this area, generally it means below 80% area median income.

Some people also define it as below 120%, but without going too much in the details, that's generally what it means. So the reason why you want to make sure people have access one of the reason you want to make sure those people have access to solar is they spend a much higher percentage of their income on their utility bills as the rest of us. About almost four times as much as you or me. And I'm lumping us in the same income brackets. I don't know if that's correct. So they spend a lot of money on their utility bills.

And so obviously when you're giving them away month after month after month to reduce those utility bills, that can have a really outsized effect on them. Right? So it's not just the cost of purchasing the solar to begin with, it's the continuing saving over the lifetime of the asset that you'd have to kind of look at.

David Roberts

It's kind of like giving them money every month.

Vero Bourg-Meyer

Yeah, essentially. Yeah. Assuming there is a saving, which it has to be structured that way. It doesn't just happen like that. And then there is the resilience benefit that you can get when paired with batteries. And I was saying earlier, I'm going to use low-income communities as kind of LMI communities, very generally speaking. But we're also talking here about communities of color in communities that generally, because of redlining, have older housing stock houses that are not well insulated. When you start with that and you add storage, you get a really huge resilience benefit for them.

LMI also means higher rate of chronic diseases, right. So you need your dialysis machine to work all the time, not just some of the time. So that's another really big reason. But I'd say your question though, about why not just give them money? If you kind of put aside, is it politically pragmatic to just give them money? Which I don't think at this stage it is. We tend to wage a war on the poor instead of waging a war on poverty in this country, right?

David Roberts

Yes.

Vero Bourg-Meyer

So setting that aside, if you're looking at who deploys the solar in this country, it's the private sector, right? And there are other barriers that are kind of standing in the way of LMI communities getting solar other than just the initial funding. The initial funding is a big part of it, but there's also lots of other reasons why customers don't trust the developers. Developers are not interested in serving or generally not all of them.

David Roberts

Let's talk about those a little bit. Let's talk about those barriers. Because I know intuitively, as you say, the obvious barrier, I think, which jumps out at everybody is just not enough money. That's what low-income means. But that's not the only reason that deployment of rooftop solar is lower in these communities even than what you would predict based on income, right? The barriers that go beyond income. So let's talk about some of those. Like, what are the kind of things that are stopping these households from accessing rooftop solar?

Vero Bourg-Meyer

Well, so the funding one, I don't want to just fully put it aside, right. Because that's a really huge one, the upfront cost, and just for your listeners who may not be familiar with the cost of solar for a regular household. So if you look at the average size of a solar asset in this country, which is about seven kilowatt, I believe, and then the average cost between $3 and $4 per watt. So that's what? That's $25,000, roughly, that you have to find.

David Roberts

That's not small for anyone ...

Vero Bourg-Meyer

It's not small. And that upfront cost you and I have access to other kind of funding. We have access to financing, right? Low-income communities might people might have a lower FICO score or no FICO at all, or maybe even no bank.

David Roberts

FICO is just a credit score, right?

Vero Bourg-Meyer

Yes, that's right. Yeah, that's a credit score that's being used by lenders to decide how much they want to charge you, essentially, and whether they will even charge you, whether they will agree to give you a loan. Not to mention if you are really struggling to put food on the table, the idea of taking on additional debt is just not always interesting, at least not for everybody. We can get back to that. So a big barrier beyond the funding is the physical barrier, right?

So the site suitability, what's called site suitability criteria, roofs could be in a really poor shape. If you have issues of lead and asbestos in your house, it's really hard to get a contractor to go in and crawl in your attic to go install something. They're just not going to want to do it. And then there are some things that are kind of more linked to the type of housing you might be looking at, right. So single family homes is one thing. Multifamily homes have specific issues. You could think of where the meters are located. That's kind of a dumb one, but it really is a problem.

So if you have meters that are specifically dedicated to apartments, that's great. If you have one meter and then everybody kind of shares, that's creating kind of more issues. So, yeah, physical barriers are a big one. And also the way that the subsidies that we've mostly been using for solar up to this point so the tax credits, primarily. So the investment tax credit, up to this point, the PTC, the production tax credit, wasn't open to solar. Now it is with the IRA. You can't monetize the ITC if you don't have a tax basis, right. The non-taxable entities, affordable housing, the non-profit developers, none of those can access the ITC.

Could access the ITC until the IRA with direct pay. And then as an individual, a homeowner that does not pay taxes cannot utilize that in a very obvious way. So there are ways to kind of go around that. But generally speaking.

Isn't it also the case that LMI people are more likely to rent or more likely to live in apartment buildings where they don't?

Well, it depends actually ...

David Roberts

Isn't that also a problem?

Vero Bourg-Meyer

I mean, it is an issue. You'll find those traditional kind of split incentive issues, but it's not necessarily the case that it's everywhere. I don't have in mind the number, the percentage of renters versus homeowner on top of my head, but it really depends on the states. And I think that's when you're a state policymaker, you're looking at kind of building a solar program. Your housing market is not a monolith, and your solar market as a result is also not a monolith. So you have to really dedicate brain space to creating solutions that are really tailored to what you're trying to tackle to specific issues in your state.

David Roberts

So, barriers, we've got the obvious one. Finance and funding got physical site suitability, meaning like, the actual buildings themselves might need work before they're even ready for ... One that springs to mind always when I think about these communities is just who's reaching out to them and talking to them and educating them. Is awareness a big barrier?

Vero Bourg-Meyer

Big time. And I would say those kind of behavioral barriers exist both on the developer side and on the customer side. On their developer side, they just will not market to them, right?

David Roberts

Right.

Vero Bourg-Meyer

They just viewed as not good customers, which is definitely not the case. There are studies out there showing about the same kind of default rates as ODA loans, right?

David Roberts

Oh, really?

Vero Bourg-Meyer

Good enough. Yeah. So if it's good enough for a giant trillion dollar industry, I think it should be good enough for solar. And there's nothing as boring as an ODA loan. So I think we could do this. But on the developer side, that's really just a perceived risk kind of issue. And on the customer side, there are trust issues as well. Right?

David Roberts

Yes.

Vero Bourg-Meyer

Lots of fly by night action.

David Roberts

Yeah, I was going to say scams are quite common. These people tend to be targets of a lot of scams.

Vero Bourg-Meyer

Yeah. So one that you hear about and I don't have specific data on this, just kind of stories, but one that you hear about all the time is developers coming in and then promising a big government subsidy because they're thinking about the tax credit, and then a homeowner will just go for it and then realize oh, wait. I can't monetize this at all. This is not working for me. I'm not getting the money. This money is just paper and I don't have anything to apply it to. So, yeah, that's dishonest. Business practices are also out there.

So all is to say it requires a lot more effort for customer acquisition and you can't just sit and expect those customers to come to you. And obviously, as a developer, if you have the choice between targeting that group over here that you think is going to be much better at paying, which it isn't, but you think it's going to be the case, and also naturally trust you more versus a population that trusts you less and it's harder to get to. Well, the choice is easily made.

David Roberts

Right, there's all these sort of like, I don't know what to call them, soft costs, I guess. Just like developers tend to be in the socioeconomic bracket of a certain type of customer and then everything becomes easier. Communication, right. Like they understand one another, et cetera, et cetera.

Vero Bourg-Meyer

And then you have other things like language barriers, obviously.

David Roberts

Right.

Vero Bourg-Meyer

And that can be a big one in some communities.

David Roberts

So it's not just effort, it's who is going to talk to them. Like choice, finding someone that is trusted within those communities to communicate absolutely is a big deal.

Vero Bourg-Meyer

Yeah.

David Roberts

So we're going to get a little bit into how states are doing this later. But just I want to start with the IRA because obviously everything in the energy world is different now. We're in a new world. We're all discovering this new world. So what specifically did IRA do for LMI rooftop solar?

Vero Bourg-Meyer

Lots.

David Roberts

Of course.

Vero Bourg-Meyer

I would say lots, but lots in ways that aren't necessarily fully clear at this stage. I mean, the way I think about it is because I work at the Clean Energy States Alliance, right? I look at it from a state policy maker perspective. How can they build programs around what the federal government put together and that kind of funding? So the three big buckets and I'm not telling you anything you don't know, obviously, but just to organize my thoughts, the three big buckets are the tax credits, the Greenhouse Gas Reduction Fund, and the Loan Program's office.

And I'll start with the least obvious one, which is the Loan Program Office, the innovation ... so there's something called Title 17 that offers clean energy loan guarantees, right? And that up to IJA. So that's pre-IRA, until IJA, someone applying for this, was required to show some sort of innovative element, right?

So the loan program's office wasn't going to say, "Oh sure, I'll guarantee your solar thing over there, that looks great." No, it has to be something a little bit more exciting than that.

David Roberts

That's sort of the point of LPO, right? Seed innovative things.

Vero Bourg-Meyer

Yeah, well, since IJA that's not the case anymore.

David Roberts

And by the way, we. Should say IJA is the hell I don't know what it stands for. The infrastructure ... the Infrastructure Act.

Vero Bourg-Meyer

The Bipartisan Infrastructure law. So what does I stand for? Infrastructure and Investment and Jobs Act or something. So the kind of the first big piece of climate legislation passed in this new era that we are in the projects that are supported by a state energy finance institution can access loan guarantees now from Title 17 from LPO without having to show that they're super fancy and innovative. And the funding then for LPO was also expended through IRA. The IRA really put in a lot more cash into this thing that they started doing. I'll give you an example to show you how this relates to low- and modified-income solar.

So imagine a community solar developer wants to develop some solar that benefits LMI communities and they go and get some grants from the state to serve a specific area. The developer now has access to an LPO loan guarantee and they could say, I need a construction loan. Go out, find that construction loan is typically the most expensive part of the process in terms of capital cost. And now they can talk to their private lender and say, hey, I got this grant from the state. That means I can apply for this loan guarantee. How about you give me a lower rate because DOE is going to be there and guarantee that I'm a good bet for you. Right?

So that's a really interesting kind of piece of the equation that I guess doesn't really get talked about much unless you work at LPO.

David Roberts

Federal loan guarantees can basically lower the cost of capital for developers.

Vero Bourg-Meyer

And it doesn't have to be that the state participates in the way of grants. They could be doing things like a loan loss reserve or straight up loan. They could invest in however way that they want. They just have to support the project, at which point the project becomes eligible for an LPO guarantee. And that's as long as that support is being done by this state energy finance institution. Which can be a big number of things, but it could be a state energy office. So the folks I work with.

David Roberts

Or a state green bank.

Vero Bourg-Meyer

Yeah, absolutely. So that's one pocket of money in the IRA. The next kind of pocket of money that can really have an impact on LMI communities in terms of solar deployment would be the Greenhouse Gas Reduction fund. So that's an EPA program in total. So it's got a bunch of buckets, it's got a $7 billion bucket that they're calling it Solar For All. Actually, the implementation framework came out yesterday from EPA, so it's all very new and exciting. This was the talk of the town this morning. So there's a $7 billion bucket for cold solar for all that will only apply for the benefit of LMI communities.

And that's $7 billion that the states can apply to, in its states, municipalities, tribes. But essentially what EPA wants to see is they want to see solar, rooftop solar, community solar distributed storage and upgrades. And the really cool thing about that and the rules that we just learned about yesterday is that electrical panel upgrades, roof repairs, they are covered under that.

David Roberts

This addresses the site suitability stuff we're talking about so you can get some money to prepare your house for solar.

Vero Bourg-Meyer

Absolutely. And hopefully you can enjoy the benefit of a well built solar program that your state are going to put together.

David Roberts

Right. So states put together some kind of program and then go to the EPA and say, hey, we have this program, give us some money to fund it.

Vero Bourg-Meyer

That's the idea. That's the idea. And then there are two more buckets in there that could apply to solar. I mean, solar is part of it, but then it's open to kind of different types of applicant. There's a $14 billion bucket that focuses on kind of clean investments. So that's going to go to two to three national non-profits. So the point there is to leverage funding and private sector lending or investment, generally speaking, at a national level. So do things really big, essentially. And 40% of that is as part of the justice 40 framework, is going to go to LMI communities and the remaining $6 billion is to capitalize organizations that are directly lending or providing financial assistance and technical assistance to LMI communities.

So the $6 billion bucket and the $7 billion bucket are all LMI and the $14 billion bucket is 40% LMI.

David Roberts

That's a lot of billions.

Vero Bourg-Meyer

Yeah, that's a lot of billions. Exactly. And I think the fun part of this is when you work in and around state government is everybody is super excited but no one knows what's going to happen. And there's a lot of like, how are we going to do this?

David Roberts

Yeah. I guess it goes without saying that these monies have not started dispersing yet, right? We're just figuring out the rules for them. So no state has yet gotten this money?

Vero Bourg-Meyer

No, not yet. But then at CESA we are actually going to be working on trying to build some sort of a template program for states that they can use and replicate. Because the key here, particularly with the $7 billion bucket, is that it's going to go quick. I know it sounds ridiculous, it's a ridiculous thing to say, but they are opening in the summer and then the money has to be out of EPA within like a year, essentially.

David Roberts

No s**t.

Vero Bourg-Meyer

Yeah.

David Roberts

Wow.

Vero Bourg-Meyer

Yeah.

David Roberts

So there's like a bunch of we're hurting toward the trough here.

Vero Bourg-Meyer

Yep.

David Roberts

And once you divide that up among 50 states, I guess it's maybe not as big as it looks on the surface. So I guess the other bucket is the tax credit which ...

Vero Bourg-Meyer

Yes, the tax credit. And so the tax credit is a fun one because ... I mean, they're all fun.

David Roberts

Nothing like money. Nothing like money for the study.

Vero Bourg-Meyer

Yeah, exactly. Going to solar for LMI communities to get us excited. But the tax credit is really big, right?

And it seems like every other week there is another study that comes out and says, "Hey, this is going to be this big. No, it's just kidding. It's this big."

David Roberts

Right? It's uncapped. Which means we've been over this on the pod before, but just for listeners who don't know, these tax credits are not ... there's no upper limit set. So how much money the Feds are going to spend on these tax credits depends entirely on demand just how many people apply for them. And so, as you say, we keep getting these new analyses saying, "It's going to be a $3 billion program, no, $5 billion, no, $10 billion." The estimates of how much of this is going to be demanded keep going up and up.

Vero Bourg-Meyer

Yeah. And it's really big. There's one piece. So the part of it that ... there are a couple of parts that are exciting. There's one piece that's the structure, the change in the structure of the tax credits that can make a huge difference in some institutions that before the IRA did not have access to tax credits, now can have access to tax credits. And then there is a piece of it that actually is capped, but that we don't exactly know how that's going to work. So let me start with this last one first. There is a new LMI, what we're calling an adder.

So it's an allocation and it will be either 10 or 20% extra. So 20 percentage points or 10 percentage points extra on top of whatever else you have. So either your 30% base or your 40% or your 50% if you're meeting all of the criteria that the statute has set. And that is capped at 1.8 gigawatt per year. So the way this is going to work is not like the rest of the tax credits where you just kind of go through your projects and your tax credits work the normal way. This one is allocated after the fact.

So it's a whole process that projects are going to have to go through with treasury. And at this stage, it's a little bit unclear how this is all going to work. There are some rules that were just issued, I want to say about a month ago, but don't quote me on that just recently, let's say. And the way this is working for 2023 at least, is that we're only going to have about 60 days, depending on the category. You find yourself in 60 days to apply for the tax credit within a whole year.

David Roberts

After your project is done.

Vero Bourg-Meyer

Well, no, that's the kicker. That's the kicker. You can't apply retroactively. You have to wait. You can't place in service your project before those 60 days. So that's the part where we're not too sure how this is going to work. And then DOE, treasury are going to have to figure this out because it doesn't quite fit a traditional residential solar business model.

David Roberts

This is sort of like where non-profits like CESA come in, right? Like you figure this out, hopefully you set up some sort of template, right, some sort of template that businesses can use so that every project doesn't have to sort of learn all of this from scratch.

Vero Bourg-Meyer

We can help find the information list. But yeah, at this stage, we're not sure how that's going to work, but it's potentially still very big. And then on the structural front, so direct pay and transferability are those new two fancy things that we can do with tax credit. So direct pay being you go through your project, you finish your pleasant service, et cetera, et cetera, and instead of receiving tax credit at some point, so after you file taxes and request all that, at some point you get direct payment from the government. So that's really exciting for all the non-profits that previously did not have access to that.

And I'm talking there's so many non-profits, I think maybe that's something that people don't necessarily see. There are a lot of non-profits working with and for and organized by as well, LMI communities, right?

So we're talking affordable housing, we're talking health clinics, we're talking homeless shelters, all sorts of stuff.

David Roberts

So just the shift to direct pay alone is sort of an equity is a justice thing, right, because it's mostly going to be non-profits.

Vero Bourg-Meyer

Yeah, I mean, it's too bad that they didn't want to just when we're talking about kind of giving money directly, I think tax credits are way that the government kind of gives out money directly, right? And they decided when they passed the IRA, Congress decided, "We're going to do this only for non-profits." Why not for people? I don't know.

David Roberts

Yes, you do know, though. His name is Joe Manchin, right? Let's not pretend we don't know why all the flaws in this bill are in there.

Vero Bourg-Meyer

Yeah.

David Roberts

Okay, so there's buckets and buckets of money in the IRA of various places for LMI communities, LMI developers, non-profits who want to work with LMI communities to go get so let's talk a little turkey then about what these programs look like. What are the sort of tools that states use to reach these communities? And maybe if you want, you can use Connecticut as your sort of standard bearer, because as I understand it, they have the top of the line program.

Vero Bourg-Meyer

Yeah. But I should say they had because it's finished. It terminated. The program terminated.

David Roberts

Oh, it was like a set amount of money they dispersed and then ...

Vero Bourg-Meyer

No, they were looking for a specific megawatt capacity and they reached out and then the legislature was like, "Yeah, you're done. You're moving on to solar, to solar and storage." So now they're doing solar and storage with justice instead of just solar with justice, which is also really exciting. And I should say part of my work at CESA is working as part of the Scaling Up Solar project, which is a DOE funded project. So my salary, part of my salary comes from DOE. We tried to help states replicate the Solar for All program from Connecticut, and it was a really successful program.

I like to talk about it in terms of how much of the savings that people get, because that always blows people away. So there is a VIC study that kind of shows the kind of savings that the customers from the Connecticut Solar for All program received. And we're talking $1,300 a year. That is ginormous.

David Roberts

Per household.

Vero Bourg-Meyer

Yes. That's not chump change, nothing. And then within that, you have about $700 worth of solar and then you have efficiency stacked on it. So what they did that was really smart to start with is that they looked at all the incentives that were available in their states and there was part of it, the efficiency part, that was really just managed by the utilities, and they were like, well, let's make sure that we do those two things together.

And solar plus efficiency in general, it's a winning combination. I want to say, in terms of savings for anyone, not even just for LMI communities, but if you stack your incentives and you stack your products, solar and efficiency together works really, really well. So you remember at the beginning when we're talking about how this upfront cost is really an issue and there is no access to financing that's available for you if you are in a certain income bracket. So the program is really a lease program. So it's third party ownership, TPO. And I should mention that there is a bit of a debate in the advocacy world out there on the kind of the value of TPO versus direct ownership.

So some people are really married ...

David Roberts

Yeah, I've been tuned into this for a long time and I heard debates about it. Not only like, financial debates, like, which is better financially, but also which is better for the homeowner and obviously third party ownership, which, just to explain to listeners who don't understand it's, just a company owns the solar panels on your roof and what you're buying from them. You buy the power from them, basically. So you as the household do not have to pay for the panels and the installation. The company pays for that, they own it, and you're just basically buying the cheap power.

So that's what third party ownership means. So what is the debate?

Vero Bourg-Meyer

So the debate is, when you're using third party ownership, some people will say, well, you're not getting all the benefits, all of the wealth creation that happens with solar, which if you're looking purely financially that's true. Yes, that's correct. I don't think there is any need to debate that. Anyone who's ever looked at a solar model can tell you that's true. But the issue there, I think, is that what I personally think is that we can walk and chew gum at the same time. We can utilize third party ownership models for what they're really good for, which is giving access to solar, to families, so that they can get savings right now, right?

Not tomorrow, not in five years, when we figured this out, not hypothetically, once a project magically comes online, maybe potentially, perhaps mayhaps in the future, but like right now. Right. And in most of the programs that I can think of, state programs that focus on third party ownership, there is some aspect of trying to convince the developer that there needs to be a pathway to ownership. Right?

And I think that's actually been folded now into the greenhouse gas reductions fund solar for all competition that we were just talking about.

David Roberts

Isn't it standard in these TPO arrangements that you can buy the panel at the end of whatever the lease period is?

Vero Bourg-Meyer

Right. Yes, it is very standard. I think what we're talking about here is accelerating that. Right. So how do you make a pathway so that at the end of, let's say six years? Because that's about when tax credits or tax equity investors would get out of that investment. In about six years or seven years, is there some way that you can help that customer actually purchase the panels directly? Straight up. Right. And I think there are developers out there thinking through this. There are states out there thinking through this. And I don't think we need to be married to one system or one deployment model over another.

I think they all are good for some things and less good for other things.

David Roberts

So you can get a little bit of a hybrid, then you can get some sort of benefits of TPO and then maybe ownership in the longer term.

Vero Bourg-Meyer

Yeah, absolutely. And then to go back to the Connecticut, because I kind of went astray there to go back to the Connecticut model, it's a public-private partnership between the Connecticut Green Bank and a company called PosiGen. They are a developer that was born out of Katrina, essentially, and that really was born in New Orleans to try to help folks get over the consequences of Katrina and really bring some resilience benefit to customers. So what they do is that they stack up efficiency and solar incentives, as I was mentioning earlier. And what the state of Connecticut also did with the Connecticut Green Bank did, is that they created an elevated incentive.

So an extra amount of money if you met some income qualification criteria. So if you are meeting those criteria, you're getting extra money, PosiGen comes to your house, and then no matter what, you have to go through what's that called? An efficiency test, essentially.

David Roberts

Efficiency audit.

Vero Bourg-Meyer

Thank you. So you go through your audit and then the company will tell you, okay, well, here are the things we can do kind of on the cheap, the minimum we can do. Or here are some extra kind of much deeper retrofits that we could do on your house that will bring you much deeper savings.

Which one do you want? And they give them a choice. And in addition to that, you get your solar. So the other thing that the Connecticut Green Bank did at the time, which is not necessarily required for that kind of a project to work or that kind of a program to work, but that was really helpful in the context and that's something that states have to think about was to support the company in a different way financially as well. So they offered subordinated debt to the company because at the time PosiGen was a new company, the market was untested.

They were like, "Okay, well, if you need to be successful serving these customers, if you need an extra bit of support over here, we'll provide that and that money goes back to the state." So it's just an investment like any other investment. And that really helps that developer be motivated to serve those customers really well. So these are kind of just on the financial side and on the behavioral side ...

David Roberts

Just pause here on the financing. So the idea here is PosiGen comes to your door and says, we'll give you an efficiency audit. We'll figure out what you'll need, you'll stack it up and we'll do it for no money down.

Vero Bourg-Meyer

For no money down, right.

David Roberts

From the homeowner or the building owner's perspective, this is just a no brainer, right? Does anyone say no to this?

Vero Bourg-Meyer

The no money down is just the first piece, I think it's no money down and cash flow positive, right?

David Roberts

Right. So you're making money off it from the word, from the word go.

Vero Bourg-Meyer

From the get go, you got to make a certain target. And the way that they access those customers as well and how they decided who to enroll in the program, they did not use FICO scores. So as a company, just generally speaking, they do what's called underwriting to savings. So they look at how strong of a saving they can give a customer and then they essentially bet that it's going to work and that it's going to be strong enough for them to be able to recover their money. So if the customer doesn't make money, they don't make money.

David Roberts

Okay. So that seems to me to overcome or at least substantially overcome the funding barrier. And then if you're not using FICO scores, you're sort of overcoming or getting around the kind of credit score barrier. What about just the sort of like education and community engagement piece? How did Connecticut approach that?

Vero Bourg-Meyer

So they did a lot of community based marketing and that's been shown to work really well to sell solar in general. And there's been actually also studies looking at the type of messaging that works in LMI communities versus non-LMI communities and turns out the messages need to be about the same. People want savings. People want something fancy and new that works really well, and they want environmental benefits.

David Roberts

Let me put something cool on your house and you'll make money from the second yeah, you don't have to fine tune that a lot for different audiences. It seems like a pretty universal appeal there.

Vero Bourg-Meyer

Yeah. But one of the reasons that really worked is that the Connecticut Green Bank was super involved in selling the program really hard. Right. So no one wakes up in the morning and says, oh, I'm going to figure out how to put this expensive piece of infrastructure on my roof.

David Roberts

Not these households, right? That's probably not the top of mind.

Vero Bourg-Meyer

Exactly. And even without that, I can't remember when that was exactly. But a few years ago there was some study about priorities in spending for people. Energy was like the last one.

No one wants to think about it, basically.

No one wants to think about it, just people interested.

David Roberts

So Connecticut was aggressive then at sort of like very aggressive reaching these communities.

Vero Bourg-Meyer

Yeah. And that means going to fairs and running solarize campaigns, which are bulk purchasing campaigns for solar and co-branding stuff. Right. So you talk about this trust issue question if the state is there to say, no, seriously, this is a good program, we stand behind it, we picked these people. And then in addition to that, they also vetted all of the contractors that were being used. So it's more believable for a customer that has trust issue than if some guy came to your door and said, yes, trust me, I'm totally going to put something free on your house.

It's going to be great.

David Roberts

So it has official state backing, right?

Vero Bourg-Meyer

Yeah, absolutely. Which I think is really important.

David Roberts

Are there other pieces of the Connecticut program that are particularly that other states should.

Vero Bourg-Meyer

If you're looking at purely the lease program? Well, I should also mention it's a lease, right. It's not a PPA, so as opposed to a PPA where and there are pros and cons to using each of those. But a PPA, a customer's bill will go up or down depending on how much the sun is shining that particular month, right. And if you're very low income, that could be a problem for you. Right. Seasonality could be an issue. If it's the summer and I don't know, if you're not in a state that has good net metering policies, you could end up paying more than you anticipated.

And that's problematic, obviously. A lease the big difference is that the payment is stable. It's always the same thing every month. So it's nice that kind of being able to see over the horizon and say, yeah, this is how much I'm spending for energy. And so there are lots of other things that they did on the financing side and on the kind of the state programming side that are, I'd say, a little too complex to explain without a paper support. But they're really cool programs at the Connecticut Green Bank. I encourage anyone who's even just a little bit interested in kind of state level policy innovation to really go and look at the annual report is a great place to start because they do really cool stuff.

David Roberts

Are other states taking note? I know Rhode Island. I've seen in your work that Rhode Island sort of learned, seems like learned from Connecticut and more or less kind of took those lessons. Are these things actively spreading in states or other states?

Vero Bourg-Meyer

Hopefully, if we do our job right. Hopefully. And in Rhode Island. So the format that was followed was pretty much the same, except that we didn't have efficiency there. As an added piece, the main difference is that Rhode Island, the Rhode Island program, so the Affordable Solar Access Pathways, or ASAP, that came out post IRA. So that means the low-income adders, the ITC adders, are folded into the program.

David Roberts

So it's sort of built around the IRA money.

Vero Bourg-Meyer

Yes. And then the way that this is going to work so they also just selected they ran an RFP and selected a vendor, which also happens to be PosiGen. That's going to be the first. So that's brand new information. I think it's public for PosiGen, but I'm not sure whats fully public yet. But I cleared it with them. I'm allowed to say it. The big thing there is that when the RFP was launched, we asked the private sector, what level of incentives do you need to get to this level of savings for a homeowner? And then not only that, but what levels of incentives or what kind of money are you going to send back to the consumer or to the program?

Whichever you choose. If you get access to extra incentives through the tax credits. Right. So now you have not 30%, but maybe 40%, maybe 50%, maybe 60%. How is that shared with the customer, with the ultimate customer? So that's one of the questions that was being asked in the ...

David Roberts

Yeah, I guess you do want to take care to design these things. So you're not sort of like inadvertently just using public money to make a particular solar company richer, super rich.

Vero Bourg-Meyer

Yes. Because, I mean, it's great that they're motivated to do this and you do want the private sector motivated to do this, but ultimately it's got to create benefits for the LMI consumer.

David Roberts

Right.

Vero Bourg-Meyer

That's the most important piece of this.

David Roberts

So if I'm a state and I am looking at Connecticut and saying, "Hey, that's cool what you did. You created enormous savings for these households. You installed whatever megawatts of new solar. Our state wants to do something similar." It strikes me that this is, among other things, just administratively there's a lot of pieces of the puzzle here. There's a lot of sort of so what are the kinds of things that if I'm a state that wants to replicate this or do something similar, what do I need in place before I do this? And then one of the questions that always comes up for me is a simple one, which is just sort of how do you identify LMI communities?

Is there a common national metric or is every state sort of every state kind of bespoke figuring it out on their own? And just in general, if I'm a state, what do I need to do to get ready if I want to do something like this?

Vero Bourg-Meyer

So on the question of what the states have to do to get ready, I think that probably the most important thing. If you wanted to do the same thing as Connecticut, would be make sure that your legislation enables third party ownership very clearly because there's nothing that turns off a contractor or developer quite so quickly as telling them. So we're not too sure, we're not entirely sure what the regulatory context is like. But just before you can enable LMI solar, you have to have a friendly solar policy, just generally speaking. Right?

So do you have net metering enabled? What I'm going to say is not relevant to the Connecticut program, but do you have community solar enabled? Is it authorized in your state? Can everybody do it? Or is it something that only the two utilities that are in the state can do and oh, by the way, they don't want to do it, so it's just not happening. So these things are good places to start. But in terms of how you figure out where your low- and moderate-income communities are located, there's tons of different ways of doing it.

There are states that have gone through very lengthy process stakeholder processes and regulatory processes you can think of. California is one, New York is another, to try to figure out what constitutes a disadvantaged community or low- and moderate-income community. There are lots of different terms floating out there. And those states have gone through the process and they've talked to people whose livelihoods are really directly touched by these things, right. Not just policymakers, but people in communities. And then the federal government kind of stacks on top of it and says, well, I'm going to define low-income community for this program this different way, and then for that other program a different way.

So it's a bit of a mishmash of all sorts of definition. Often you'll have for the state definitions, a mix of ethnic and racial kind of threshold, foreign languages. You'll have poverty levels, essentially. You can have sometimes unemployment levels. But yeah, this mapping question is complicated.

David Roberts

Well, the IRA has a ton of adders and sort of set asides for justice communities. So it seems to me like this is a national concern. You need some common metric because there's so much money at stake here, it really matters how these things get defined.

Vero Bourg-Meyer

So you do need some common metric, but also states are very different, right? So a state like Vermont, which is very rural and very white, is going to be different from a state like, I don't know, California, which has a lot of urban spaces and a lot of people of color, big Hispanic population. So you can't quite blanket define everything. But I think some at least definition of what the factors need to be. Right?

So states maybe need to have a definition that fits those four criteria that include race and ethnicity, that include poverty level, that include XYZ with kind of flexibility, and what those need to be might be helpful. One of the things that we're trying to do that we're working in Colorado on a community solar program and on a community solar project or pilot project for manufactured homes. And Colorado does a lot of work with the Weatherization Assistance program WAP. They've been doing a lot of work on that for a long time. And they were the first state to use federal dollars to be authorized to use federal dollars from the WAP program to install solar.

They're moving away from that at the moment because it's too complicated. But they still want to coordinate the WAP program and the solar program. The Web program is going to use whatever the WAP program uses, which is a percentage of the federal poverty level, whereas the other programs that they're going to build are going to be using their local flavored, definition of income and race and ethnicity and et cetera, et cetera. Right. So it's all a big mess, but a big beautiful mess.

David Roberts

Big, beautiful mess. Oh, one thing I wanted to double back on, I meant to ask you this when we were talking about Connecticut, specifically about the renter issue, because this is something, this is something I get questions about all the time, like I rent, like what can I do?

Vero Bourg-Meyer

Community solar.

David Roberts

Is this how I mean, you mentioned that Connecticut doesn't have community solar as a big piece.

Vero Bourg-Meyer

No, they do have community solar.

David Roberts

Is this the primary way of overcoming this sort of landlord tenant split incentive?

Vero Bourg-Meyer

I think it is. I think it is, although so there are some programs there's a program in Hawaii, for instance, through the Hawaii Green Infrastructure Authority that's allowing renters to participate in leases, essentially, and they have on bill financing that's enabling that with the Hawaii Electric Company. And that's working, I think hopefully it will work really well. That's a new program. It's called the Gems Energy Services program. But yet, just generally speaking, outside of exceptions like that of Hawaii, community solar is definitely the way to go. I mean, it's the way to go not for renters only, but also if you just have trees around your house and you can't access the sun.

David Roberts

What if you want to get solar panels on a big apartment building, an apartment building, say, that is occupied mostly by LMI people? Is there anything in these programs that can work with landlords or get around that?

Vero Bourg-Meyer

Yes, so I think the SOMAH program in California would be one that applies to that. And it applies to affordable housing, really. So the way that it's structured, and I'm not super familiar with it because it's not what I focus on. But one of the interesting pieces is, so heard, the way that they define the Department of Housing and Urban Development, the way that they provide funding for folks is that they request that the rent and the utility be kind of lumped into one payment, which is good for a number of things. But then when you start installing solar on something, it makes it more difficult because any changes to how much you pay in utility will trigger an increase in your rent.

So that's not super helpful. And they worked with the program in California. They worked with HUD to kind of get rid of that. So that was a good piece of the puzzle. And they are renters. They're renters. But you got to work directly with the non-profits that own the affordable housing. And that's not easy. They have lots of things to figure out and lots of other issues to figure out. Right?

David Roberts

Yeah. That seems like an area where, like a super simplified model that you could just replicate across would be helpful. We're running out of time. And one of the big things I wanted to ask you about was the reason that this whole conversation was prompted in the first place was a new report that just came out, which is specifically looking at how non-profit foundations can sort of enter this LMI solar space induce, help, support. We don't have a ton of time, but maybe you could just say a few words about if I'm a foundation and this seems like a good thing that I want to do, are there models?

How do I get involved?

Vero Bourg-Meyer

Yeah. So first you should read the report.

David Roberts

Of course, always read the report.

Vero Bourg-Meyer

Energize your impact. It's on the CC website. But what I'm going to say is true, I think, for states, it's true for the federal government, it's true for the foundations, it's true for the green banks. If you are building or looking interested in supporting LMI solar, you need three pieces. You need the capital, you need the customers, and you need the capacity, the capital. There are tons of different ways for foundations to provide capital. That's what the report is about. And we focus on really we go in depth in some of the fancier ways, the guarantees, the equity investments.

David Roberts

There's grants, there's loans, there's loan guarantees.

Vero Bourg-Meyer

Yeah. And equity. I didn't know that before starting this research. I had absolutely no idea that foundations could do equity investments. It blew my mind when I thought that was possible. So that's your capital. Then you have your customer side. Where are you going to find your customer? How do you help people find customers? That's the second big bucket. And the third bucket is the capacity. And there are models in there that kind of look through how you build capacity in LMI communities, and particularly in either the LMI serving institutions or the non-profits that kind of support these communities.

And one model I guess that I'd like to point out is called Technical Assistance Fund from our sister organization, the Clean Energy Group that's explained in the report is really about finding that trusted third party advisor to help a community figure out or a community institution figure out, like, what are the options out there. To start with, if you want to build a pipeline of projects, you need to actually help the projects be born. And that sounds completely obvious to say, but you can have all the capital in the world if there are no projects to apply it to because people don't know what they need. Do I need a big battery or a small battery?

Do I need a battery at all? Like, what kind of solar can I use? Can I put it on my house? Can I put it on my hospital? Should I put it in a field over there? How does this work? Just generally speaking.

David Roberts

Who is that? Who is that? Who are those trusted? How do you find those people? Who are those entities?

Vero Bourg-Meyer

They're contractors. And I think the fact that they're trusted just means that they're not selling you the final products, right? So generally speaking, developer will be the person that tells you, this is what you need. Believe me, this is what you need, and I'm going to sell you. Exactly. And that does not necessarily inspire trust. So you really want kind of a third party there to be able to help figure out what the options are. And these are just essentially engineering firms that look at your situation, look at your needs, and try to help you make sense of it.

So that's a big thing.

David Roberts

So a foundation can just support and fund those?

Vero Bourg-Meyer

Yeah, absolutely. I think that's a really fundamental piece of the equation. There's a piece, an editorial piece that was written by Joe Evans, who works at the Kresge Foundation and who is absolutely brilliant in all this stuff, but also wrote an op-ed aptly named "It's the demand side, stupid." And I think it's not subtle, but it gets to the point, right? It's like you need all of it, right? You need the capital, the consumers, and the capacity for this to be successful.

David Roberts

And you need to basically cultivate and educate customers. Like, this is one of those kind of areas where you just can't rely on a market in some sense because you're creating market demand by educating.

Vero Bourg-Meyer

Oh, it's absolutely it's all about building markets. It's all about building markets.

David Roberts

Right. This has been awesome. As a final question, I just was wondering sort of what is the prize here? Say we just got low- and moderate-income households up to parity so that they're installing solar at the same rate, say, as other households. How much power in terms of like megawatts and gigawatts, is this a substantial amount of energy we're talking about, or is this mostly about these sort of extra energy benefits for these communities or is this really a substantial amount of it's big.

Vero Bourg-Meyer

Yeah, it's big. I was thinking earlier, if you don't care about all the reasons why you would need solar on LMI buildings, if you have no human there's not a human bone in your body that thinks it's just fair and good and just and for some reason you only think about the grid.

David Roberts

I know some people like this.

Vero Bourg-Meyer

Yeah. They're out there. There are some of them. The solar potential of low- and moderate-income household is about 40%, 42% to be precise, according to NREL, of the total US residential potential, right. It's a pretty big chunk that's out there.

David Roberts

So it's almost half the rooftops.

Vero Bourg-Meyer

Yeah.

David Roberts

So that's not a small market too.

Vero Bourg-Meyer

No, it's not a small market. It's a big market. It can have a huge impact in terms of the grid and the climate and obviously a huge human impact for the people that are buying it.

David Roberts

Right. And it's worth saying, because I don't know if we mentioned it earlier, but the households themselves get immediate benefit in terms of their energy bills lowering, and they get positive income to start off with. But over time, this stuff also accrues right. These benefits also accrue to the next generation. Air pollution lowering affects children. So these benefits are ...

Vero Bourg-Meyer

Compounding.

David Roberts

Compounding over time.

Vero Bourg-Meyer

Absolutely.

David Roberts

Vero, thank you so much for coming and decoding this area for me. It sounds like lots is happening.

Vero Bourg-Meyer

No, thank you.

David Roberts

The money is raining down and we're all dancing around.

Vero Bourg-Meyer

Yeah, we're all dancing around trying to figure out how is this all going to work? This is a very exciting time. And if there is one thing that I would want people to remember, is that LMI solar really matters. It can make a huge difference in people's lives. And it doesn't happen by accident. It needs to be designed. So get out there and design stuff.

David Roberts

Awesome. Thank you so much for coming on.

Vero Bourg-Meyer

Thank you so much. Bye.

David Roberts

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