This post was collaboratively written with guest contributor Ravi Mikkelsen, co-founder of the just-launched climate positive banking startup Atmos.
“We cannot achieve 100% clean energy unless 100% of the people have clean energy.”
— Danny Kennedy, Chief Energy Officer, New Energy Nexus
Upper income homeowners in just a handful of states reap the benefits of residential clean electrification in the United States. We’re shocked, shocked.
Even if tomorrow, the Residential Solar Fairy were to wave a magic wand and drop the price of resi solar by 30-50%, over half of Americans would still not be able to put solar on their roofs.
Sobering. But also, what a massive business opportunity for energy justice-minded clean tech companies.
To make solar available to renters and middle/lower wealth homeowners, we’re going to need more creative financing solutions. Here’s our review of several ideas about how to pay for the equitable distribution of residential solar in a future we’d want to live in.
Members of a community — loosely defined — can choose to pay for and and use a community solar installation. The group can be apartment complex renters, a collection of neighborhood houses, or even people spread across a city. Owners of a community solar garden “plot” don’t need to own their own home. That opens up the possibility of solar power to a lot more people.
However, that community still has to pay for the installation, which usually requires them to get a loan. Loan underwriters use FICO scores, which reflect and reinforce existing systemic racism, to underwrite the costs. But they don't have to.
EnergyScore — an alternative to FICO score
Consider “EnergyScore” by Solstice, a hybrid clean tech startup with both not-for-profit and for-profit arms. EnergyScore considers multiple variables, including utility bill repayment to determine who is most likely not to default on their loan. Solstice claims positive early results: “Customer data suggest that it represents a 40% accuracy improvement over FICO in predicting utility bill payment behaviors and is 10% more inclusive of LMI [Low to Moderate Income] households.”
A new pair of financing solutions could be coming down the pipe from the just launched banking startup ATMOS Financial.
Blended capital refers to a combination of for-profit and not-for-profit capital in order to make lending to subprime and LMI households less risky. By using not-for-profit capital as a hedge against loan default in a loan loss reserve fund, the for-profit lender can keep the rates on these loans affordable. The not-for-profit arm essentially assumes the risk, to promote the greater societal good. As soon as blended capital loans gain traction, the data they produce about default rates can help other financiers price their loans more fairly and accurately, thus accelerating an inclusive clean energy transition.
Property owners are the ones required to sign contracts for PV system installation and financing. That simple fact has prevented most renter-occupants from transitioning to clean energy, because reaching an agreement between the owner, the renter and the financing institution was so difficult. Enter ATMOS Financial, to broker these tri-party agreements.
The financial institution makes the loan to a homeowner on behalf of a tenant. The tenant agrees to pay the monthly loan costs, which will be less than their monthly utility bill. The new electricity bill, with solar (which the tenant pays) will be significantly less than the old electricity bill; the tenant and the property owner split the savings. That savings will ease both parties’ cash flows and give property owners a cushion to cover the bills between tenants.
Utility on-bill financing could work for homeowners, renters, and high- middle- or low-income borrowers. This solution is new to residential solar, though other energy efficiency programs have long used it. Utilities manage the financing and construction of the energy upgrade project. They bill the consumer via a monthly charge directly on the utility bill.
Since the utility has access to low-cost, longer-term capital, the monthly payments will be less than what the resident was previously paying. Regardless of FICO scores, residents who were already paying their bills are unlikely to stop paying them post-installation. Homeowner-landlords are still responsible for payments if there is no tenant. But they now own a more valuable property, without spending a dime upfront. Everyone wins.
Want to know more about on-bill financing? Check out the Building Decarbonization Coalition’s recently released white paper.
100% of the people will never have clean energy until we solve the issues of accessibility and affordability. These solutions will push us toward that goal, but not all the way. There are no cutoff dates in stopping climate change. No point at which we can say, “We’re all good!” It’s more like a continuum — every 0.1 degree of temperature rise that we avoid removes energy from the climate system that will otherwise cause future harm.
We don’t need one perfect answer — we can use all of these solutions. We need people to apply the full force of our collective brain power to finding more solutions like these. And we need to keep going.
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