Originally published on RMI Outlet.
By Kendall Ernst
In June, RMI—along with its partner organizations—launched eLab Leap in New York to identify the unmet needs and create solutions that empower and improve the lives of low-income communities and households in a clean energy future.
Forty diverse groups joined eLab Leap’s first meeting including low-income and consumer advocates, environmental groups, government entities, housing organizations, utilities, regulators, foundations, and financiers.
The meeting attendees created four initiatives to collaboratively implement and test solutions for low- to moderate-income (LMI) communities in New York. These initiatives are:
- REVitalize: Fund a community-generated, clean energy plan that leverages New York’s Reforming the Energy Vision (REV) proceeding to bring economic and environmental justice to all members of the community.
- Public Participation Initiative: Drive more effective engagement, participation, and communication between government agencies and stakeholders working on low-income issues in New York.
- Community Energy Project: Conduct and implement holistic and complete energy efficiency, weatherization, and DER audits, retrofits and upgrades all at once, and at scale in a particular neighborhood, and develop a sustainable funding model.
- Guide to Community-Owned, Local LMI Microgrids: Develop a guide to help communities interested in pursuing community-owned, local renewable energy infrastructure to understand the decisions they need to make and the actions they need to take to achieve their goals.
RMI and eLab Leap hope to scale successes from these initiatives across New York and, in the future, nationally.
While developing the framework for eLab Leap, RMI interviewed several key stakeholders in New York. A recurring and intriguing question was how entrepreneurs and others in the private sector can better serve LMI customers.
The choice to save
Middle and high-income customers can typically choose to either invest in distributed energy resources (DERs)—such as rooftop solar, smart thermostats, energy efficiency, and battery storage—to lower their bills or for personal preference, or pay their bills, even high ones. Often, LMI households do not have the same choice and level of access to DERs. These households face several barriers:
- The upfront costs of DERs are too high.
- Their credit ratings make financing prohibitive.
- They may rent their homes, making the landlord-tenant divide a challenge.
Yet, LMI customers have the most to gain from DER technologies because of the disproportionate burden placed on them by energy bills. LMI households spend up to 14 percent of their income on energy alone, even after accounting for energy subsidies. For comparison, the average household spends about six percent and wealthy households spend around three percent. It’s not just that they pay a much greater portion of their income on energy bills. LMI households often are less energy efficient per square foot, so they’re hit with a double whammy. Their homes use more energy per square foot than the average and they are burdened by paying a much greater percentage of their income on energy bills for those homes.
LMI families choose to either keep the lights on or eat in the dark. Over the past year, nearly 300,000 New York residential customers had utility service disconnected for non-payment, with low-income customers experiencing a disproportionately high amount of these arrears and service terminations.
Prices of DERs are dropping rapidly, and increasingly more middle- and upper-income households turn to the market to buy and finance DERs that lower their energy bills. However, regardless of dropping prices, most LMI households can only afford DERs with the help of government programs and subsidies. Even then, these families continue to face the same barriers to consumer choice and access. This is largely because only a few DER companies are creating products for the typical LMI household, a surprising fact considering the size of the opportunity in this market.
From burden to opportunity
LMI customers spend big on energy, and their potential for saving money and energy is even bigger. LMI customers spend approximately $70 billion on energy every year. This spending dwarfs the combined $5 billion annual budget of federal energy assistance programs that only serve a fraction of households. The Low Income Home Energy Assistance Program serves approximately 7 million households each year, while the Weatherization Assistance Program had weatherized approximately 6.4 million homes in 2010 since its inception in 1976. To put these numbers into context, consider that there are about 40 million LMI households in the U.S.
One avenue to increase access to DERs for LMI families is by increasing funding for federal and state programs, but this is unlikely given the downward trend of current budgets. But, what if instead, LMI consumers had the choice to redirect their spending from energy bills towards DER technologies affordable to them?
There exists an opportunity for DER entrepreneurs to capture a sizeable chunk of the LMI energy market by designing products specifically for these households. That means rooftop solar, smart thermostats, energy efficiency, and other DER products created for and marketed to LMI customers. Some of the multibillion-dollar questions for entrepreneurs are: Can they manufacture products or design financing mechanisms that LMI customers can afford? Can they overcome barriers such as first cost and bad credit? And, can they do so without being predatory?
First movers are already serving LMI, in New York and elsewhere
Some first movers have already seen the opportunities and are proving the case for viable business models to serve this market. In New York, BlocPower is using customer aggregation to encourage financing for DER projects in otherwise underserved communities. Donnel Baird, BlocPower co-founder and CEO, perceives two major motivations to serve LMI communities. First, he sees job creation, alleviating climate change impacts, and other positive social change as critical elements of his company’s involvement. Equally important is the “enormous opportunity in the amount spent on energy by low-income communities every year,” says Baird. “There are some dysfunctions and inefficiencies in the infrastructure [such as the building stock] within these communities that could lead to even more opportunities for DERs than there would be in wealthier communities,” he adds.
Two examples of national solar companies serving the LMI market are Solar Mosaic and PosiGen. Solar Mosaic is pioneering the use of financing and crowdfunding to accelerate the adoption of solar PV on LMI homes. While, through rooftop leasing and energy efficiency, PosiGen is taking a package approach to offering services for LMI households.
The time is ripe
LMI communities are underserved markets that offer a win-win situation for enterprising energy businesses: an opportunity to gain position in an untapped market and to improve the lives and relieve the energy burden for millions of Americans.
With the previously mentioned drop in DER prices, national attention is quickly shifting to how DERs can benefit LMI communities. The White House and Congress have begun efforts to promote community solar for low-income households. At the state level—through Reforming the Energy Vision—New York is a front-runner in asking how a future powered by DERs could affect LMI families and ensuring that LMI customers—and the organizations that represent them—have a seat at the table during these revolutionary proceedings. Soon, other states will be following these leads.
The participants of eLab Leap, among them BlocPower and PosiGen, see both the opportunity and the benefit of creating a market for DERs in low-income communities. We challenge entrepreneurs and businesses to do the same.
Image courtesy of ThinkStock.
Reprinted with permission.