Ensuring Solar for All Includes Affordable Housing Providers and Residents

The Environmental Protection Agency’s (EPA) recent announcement awarding $7 Billion to 60 states, Tribes, localities, and nonprofits represents a new and exciting frontier in deploying solar energy in low-income communities. Over the next several months, the EPA will finalize contracts with the awardees of Solar for All (SFA), part of the $27B Greenhouse Gas Reduction Fund (GGRF) included in the Inflation Reduction Act (IRA). The awardees will then embark on a five-year journey to provide the benefits of distributed solar energy to an estimated 900,000 low-income and disadvantaged communities.  But an intentional focus on the affordable multifamily housing sector must be an explicit part of SFA implementation if those benefits are to reach residents of subsidized housing.

In its NOFO announcing the SFA competition, EPA identified the challenge of “market structures and regulatory policies” that have slowed the deployment of solar and storage in low-income and disadvantaged communities. EPA expects SFA grantees to implement strategies to overcome these barriers and pilot new approaches that will ultimately catalyze solar deployment well beyond projects funded directly by the program. In other words, EPA wants to leverage Solar for All to achieve long-lasting changes in market structures and policies that enable new solar deployment beyond its 5-year funding period.

EPA recognizes the importance of working with partners to achieving this goal – but without intention, awardees risk missing a critical sector:  affordable multifamily housing.   EPA has encouraged SFA awardees to collaborate with “relevant market stakeholders such as utilities, public utility commissions, and other jurisdictional entities” to address energy market structures and policies, including “net metering, third-party ownership, and renewable portfolio standards.” While those structures and policies are foundational to supporting a thriving solar market, ensuring access to solar in affordable multifamily housing also requires designing SFA programs to overcome financing and regulatory constraints unique to the sector. SFA administrators should engage housing stakeholders to design programs that address and mitigate these constraints. 

Program administrators and housing stakeholders should take the following five actions to address some of the challenges to solar deployment in affordable housing: 

ACTION 1: Streamline Investor Approval for Solar

SFA program administrators and affordable housing stakeholders should collaborate to engage housing investors and standardize the approval process

Affordable housing providers can benefit from solar without the upfront cost or the responsibility for insurance or maintenance by entering into a Power Purchase Agreement (PPA) with a third-party that owns the solar facility. A PPA typically involves leasing roof space to a third-party, which requires approval from existing investors. It can take affordable housing providers months to secure this approval, delaying project deployment and increasing project costs. This is especially true when existing investors are unfamiliar with solar technology and/or solar financing structures. Furthermore, there is little consensus in the industry about when and whether such approval is even necessary, leading to further delays.

Some efforts have successfully streamlined this process. In Massachusetts, Boston LISC (as part of its Solar Technical Assistance Retrofit (STAR) Program) convened a process to get affordable housing investors comfortable with solar installations to alleviate the burden on developers of educating them. The process included streamlining many of the legal and contractual requirements involved with onsite solar deployment at affordable housing sites. There is now a standardized process to get consent from all entities, which has sped up the approval timeline from six months to two months.

In addition, MassHousing—the commonwealth’s housing finance agency—has adopted a rooftop solar policy to create a streamlined, transparent, and predictable approval process for solar leases. These policies reduce the wait time for approval and the risk to the affordable housing developer, which can further motivate them to pursue solar.

ACTION 2: Incorporate Flexibility in Providing Benefits to Residents

SFA program administrators should incorporate flexibility in defining benefits for residents. Affordable housing stakeholders should encourage administrators to do so.

EPA strongly encourages SFA program administrators to implement strategies to ensure residents receive direct benefits from the program. The most straightforward method for providing such benefits is a direct credit applied to the resident’s utility bill. However, this approach is not possible in multifamily buildings where the tenant does not directly receive a utility bill or if the building is in a state or utility territory that does not allow some form of virtual net metering.

Rather than excluding affordable multifamily from SFA, program administrators should ensure households receive benefits through other means than direct utility bill savings, as EPA has stated is allowed. In its NOFO, EPA referenced guidance from HUD that provides examples of qualifying benefits that can be provided to residents of master-metered subsidized and public housing or in cases when metering policies do not allow for distributing financial benefits directly through utility bills. Examples include job training, workforce development, facility upgrades, free or reduced-cost internet, and resident services programming. 

ACTION 3: Provide Sufficient Financial Incentives

SFA program administrators should provide sufficient incentive levels to ensure the financial feasibility of solar deployment in affordable housing while maximizing benefits for residents.

Financial incentives for housing providers must be aligned to overcome the economic challenges in affordable housing that hinder greater use of solar, including limited cash flow and reserves to invest in installing solar while sustaining building operations. Financial incentives must be sufficient to offset the upfront costs of deploying renewable energy systems, provide ongoing revenue to support debt service, and ensure that building owners can pass on economic benefits to residents. 

SFA program administrators can look to California's Solar on Multifamily Affordable Housing (SOMAH) program for a successful approach to developing financial incentives.  SOMAH provides incentives based on system capacity installed at existing affordable multifamily housing, which typically covers 50-75% of the system costs. SOMAH incentive values vary depending on whether the output benefits dwelling units or common areas. Building owners can receive up to $3.50 per watt for the portion of the solar capacity that benefits tenants and up to $1.19 per watt for the portion that benefits the common areas. The program pays for the full cost of the portion of the photovoltaic system that offsets tenant load so long as the total incentive payment does not cover the full costs of the system. In practice, participating building owners exceed the minimum requirements for sharing benefits with tenants due to the higher incentive levels required for the tenant portion of the system costs. 

ACTION 4: Review and Align QAP Policies

As SFA programs that include funding for affordable housing come online, HFAs should consider how they can incorporate incentives for solar deployment to drive demand for SFA funding. 

Housing finance agencies (HFAs) play an important role in driving investment in renewable energy in affordable housing, given their role in allocating Low-Income Housing Tax Credits (Housing Credits), which are a critical source of financing for many projects. NHT’s analysis of 53 Qualified Allocation Plans (QAPs) finds that 21 states and D.C. prefer to award Housing Credits to applicants who take steps to incorporate renewable energy in their multifamily new construction and/or substantial rehabilitation projects. These HFAs provide incentives to developers for installing solar and/or require or incentivize developers to undertake solar feasibility analyses or construct solar-ready buildings.

For example, the District of Columbia’s QAP requires all projects to install solar panels or submit a waiver for this requirement if solar panels cannot be installed on the building. The Maine HFA, MaineHousing, requires projects to include electrical raceways/conduits from the electrical panel to terminal units at the roof for the future installation of PV solar panels and to have an electrical panel that is adequately sized to provide for the future installation of PV solar panels.

Action 5: Integrate Access to Incentives into the Housing Finance Process

SFA program administrators should collaborate with HFAs to streamline access to funding through the regular Housing Credit application process to reduce obstacles to funding solar projects. 

In addition to aligning QAP incentives, aligning the application process for SFA funding with housing finance programs allows developers to include the incentives as a funding source in their financing application to the housing agencies, making it easier for projects to "pencil out" and ensure that the incentives impact design decisions. As described in a recent report on HFA and state energy office collaboration published by NHT and the National Association of State Energy Officials (NASEO), New York’s Clean Energy Incentive (CEI) program, co-administered by the state’s HFA and the state’s energy agency (NYSERDA), demonstrates the value of this approach. CEI supports highly efficient, all-electric affordable housing by providing additional funds to developers seeking financing through the Housing Credit program. Housing developers apply for CEI funds simultaneously as they apply for Housing Credits and include CEI funds in their underwriting. By committing funding upfront, CEI provides a reliable funding source for the cost of sustainability upgrades. In addition, committing funding upfront -- including funding for soft costs such as consulting services to assist with project scoping -- ensures that incentives impact building system design decisions.

Many states receiving Solar for All funding will launch new programs to deploy solar in affordable multifamily housing. As grantees set out to design their programs, they would be well-served to incorporate these recommendations to ensure affordable housing residents share in the benefits of a clean energy future.