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Clean Power

Lower-Income Households Shouldn’t Pay More for Solar. Congress Can Fix It.

Originally published by Union of Concerned Scientists, The Equation.
By John Rogers

When I bought solar panels for my house not long ago, I got a 30 percent discount, courtesy of the federal government. Too many people, though — people who make less than my family does — can’t get that discount. That means solar costs them more — thousands of dollars more per household. Why should someone who makes less than I do have to pay more for something we need a lot more of?

The answer is they shouldn’t. Energy burdens — the portion of income that households spend on energy bills — are much higher for lower-income households, and solar is a ready tool for helping many of them address that.

Congress has an opportunity to fix the federal piece right now, by amending Section 25D, the US statute that governs those tax credits. And it shouldn’t let this opportunity slip away.

Tax credits work wonders for some, not at all for others

Here’s the deal: For years, US tax policy has encouraged solar adoption, including by homeowners, through the solar Investment Tax Credit (ITC). I bought a solar system, and then when the next tax filing season came around, I reported that purchase on my federal tax form, and got a credit worth 30 percent of the purchase price. Worked great for me.

But how about if you don’t make enough to get that rebate? If you don’t owe enough in federal taxes, then you get shortchanged on the credit. Under the current system, you can’t get refunded more than you owe. Plus a lot of households don’t earn enough to owe federal taxes at all, which means they would get zero back for a purchase like that.

Here’s how Ryan Shea and Russell Mendell of the Rocky Mountain Institute (RMI) recently explained the numbers:

“Around 7 in 10 American tax filers would not have enough annual tax liability to receive the full ITC 25D benefit, according to 2018 data from the IRS. And the more than 4 in 10 Americans that do not have any federal income tax liability at all would see zero benefit.”

That’s a lot of households.

And it’s a lot of money left on the table for households that can’t take advantage of it. According to Lawrence Berkeley National Laboratory, the median size for a residential system installed in 2020 was 6.5 kilowatts, and the median price per watt was $3.8. Even with the tax credit having fallen to 26 percent in 2020, someone buying a system like that, with its price tag of close to $24,700, would have been eligible for a $6,400 tax credit, for a net price of $18,300. Someone unable to take advantage of that credit — or even the amount corresponding to a more modest system — would have had a net price thousands of dollars higher.

Denying households with the highest energy burdens access to a tool that could help many of them alleviate those burdens just seems … wrong.

Standing in the way of equitable solar

Tax policy isn’t the only speed bump on the road to solar for low- and moderate-income households, even if they have their own roofs (that is, aren’t renters and don’t live in multifamily buildings). Low- and moderate-income communities may have fewer solar providers serving them, for example, and providers that do work locally may not have the economies of scale that are another important factor for lower costs. The households may not have ready access to credit, which, even with the incredible drop in solar costs over the last decade, is still key for making solar accessible. And many people don’t live in states that have their own programs for encouraging solar adoption, including tax credits.

Federal tax policy shouldn’t be yet another impediment.

Data suggest that all those factors together make a big difference in terms of disparities based on income, and race, as RMI points out:

“While low-and moderate-income (LMI) residents make up 43 percent of the US population, only 21 percent of residential solar installations benefited these communities in 2019. On top of that, nearly half of communities with a majority of Black residents did not have a single solar system installed.”

How Congress can fix the federal piece right now

Correcting those disparities will take action on a range of fronts and at various levels. But the federal piece? That fix should be easy, and a version of it is nearly in the bag.

The best option for lower-income households in terms of this type of support for solar is something called direct pay. Under direct pay, customers would get a rebate right when they buy the system, instead of having to wait till tax time. Customers would still have to come up with the rest of the system price, but at least that portion would be taken care immediately.

Second best would be to add refundability to the policy. With refundability, households could get the full refund for that portion of their purchase at tax time the following year, even if they don’t owe enough in taxes.

As it happens, the latest version of the budget reconciliation bill known as the Build Back Better Act proposes just such an amendment to Section 25D: expanding eligibility by adding refundability. While direct pay would be a better option, and has a lot of support on Capitol Hill, either would be really important for broadening access, particularly when paired with efforts to remove other barriers to solar ownership.

Congress can make the federal change even more successful by not waiting until 2024 to implement refundability, as the latest bill proposes to do. There’s no good reason not to make this change effective as soon as possible. That’s why allies are pushing to have the effective date be 2022, which is exactly what the prior draft of the bill included.

It matters to all of us

Expanding solar’s reach matters for people who will be able to enjoy the direct benefits of solar, but also for all of us who care about addressing injustices in the power sector, and who care about maximizing solar’s contribution to cutting pollution from the power sector.

My colleague Paula García put it this way to me:

“The evidence is clear that making solar more accessible — especially to those with limited financial resources — will reduce emissions, make electricity more affordable and clean energy more equitable, and improve the health of communities. This is about helping incentivize greater and more equitable adoption of residential solar and moving us closer to a sustainable future.”

Yesenia Rivera, equity director for advocacy organization Solar United Neighbors, echoed those sentiments: “If we keep leaving folks out of the equation, we’re never going to achieve … real equity, and address climate change.”

Increasing accessibility to household solar by increasing accessibility to household solar tax credits should be an easy fix for Congress. And it’s one with powerful implications for spreading solar, increasing equity, and addressing the climate crisis. It’s high time to get this right.

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