Can Electricity Rate Subsidies Be Reallocated to Boost Low-Income Solar?

Converting Flat Rate Subsidies to Low Income Solar

Author:  Amit Ronen | Dor Hirsh Bar Gai | and Lucas Crampton

Organization:  GW Solar Institute

Report Date: 2016



Millions of Americans struggle to pay their energy bills, with low-income households spending an average of 7.2 percent of their household income on utilities, over three times more than higher income households.

Given the proven ability of residential solar systems to decrease monthly electric bills, rooftop solar could help relieve this disproportionate energy burden and become a source of ongoing wealth creation in lower-income communities. 

Currently millions of low-income households rely on a variety of electricity rate subsidy programs to make their utility bills more affordable. We found that repurposing existing flat rate subsidy programs towards rooftop solar investments could, on average, reduce low-income homeowners electricity bills by 48 percent and save them almost $9,000 over the solar system’s lifetime.

Key Take-Aways: 

  • Lower-income households face a range of barriers to going solar, including being more likely to be renters or live in multi-tenant buildings, lacking access to financing, and owning property with deferred maintenance issues.
  • While lower-income households typically use a higher share of their income on energy, the conventional wisdom that they use less electricity than average is likely incorrect.
  • Using public and ratepayer resources to pay for low-income solar investments may provide greater and more targeted ratepayer and societal benefits than existing rate subsidy programs.
  • Reforming electric rate structures to reduce cross subsidization and incorporate and prioritize low-income solar could reduce adoption barriers.
  • Finding ways to enable lower-income Americans to benefit from solar will unlock huge new markets and is essential to reaching national energy goals.

Key Facts: 

  • Less than five percent of domestic rooftop solar systems are installed on the 49 million households that earn less than $40,000 per year, despite this group making up 40 percent of all US households.
  • There are over 67 electricity rate subsidy programs in 42 states that seek to reduce monthly electricity bills for lower-income ratepayers.
  • Reallocating flat rate subsidies currently provided in nine states funds towards low-income solar would on average save low-income households $8,891over a 25-year period, with outcomes amongst states ranging from $3,940 to $15,423.
  • Low-income households allowed to switch from monthly flat rate subsidies to an upfront investment in a five kilowatt solar system would pay on average $37.47 on their monthly electricity bills, even after contributing an average of $19.77 per month to repay installation cost beyond what any one state’s existing flat rate rebate would cover. 

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