Energy Justice is Racial Justice
Community Solar Creates Equity
When you switch on a lamp, do you consider the source of its power? Do you give your monthly energy bill little more than a passing glance? For millions of Americans, this is a luxury they are not afforded. Energy poverty and high energy burden disproportionately impact people of color and low-income communities. Another ACEEE study in 2020 found that Black households spend 43 percent more of their income on energy costs than white non-Hispanic households; Hispanic households spend 20 percent more, and Native American households spend 45 percent more.
“Energy justice” calls for reliable, safe, affordable energy sources; protection from a disproportionate share of costs or negative impacts associated with building, operating, and maintaining electric power generation, transmission, and distribution systems; and equitable distribution of and access to benefits from such systems. It promotes the goal of achieving equity in both the social and economic participation in the energy system while also remediating social, economic, and health burdens on those historically harmed by the energy system.
“Energy democracy” is concerned with shifting the balance of power throughout the energy sector to energy workers and users. Communities want an energy system that works in the public interest and supports their local social and environmental goals. Energy democracy highlights that communities should have a say in shaping their energy futures.
Traditional environmental movements have historically overlooked low-income people and BIPOC persons, but solar energy can be an effective tool for implementing energy justice principles and energy democracy in under-resourced communities. People’s Solar Energy Cooperative’s (PSEC) new program demonstrates how by serving as a cooperative commons it can enable community-based solar developers (CBSDs) to build community ownership of solar, especially in low and moderate-income communities and communities of color.
Solar Energy for Energy Democracy
Solar energy is a renewable resource playing an important role in reducing greenhouse gas emissions and mitigating climate change. However, the current electricity market and existing capital markets are not built for community-focused, small-scale solar developers. To overcome the many barriers faced by cooperative solar developers, they are uniting under the People’s Solar Energy Fund (PSEF). PSEF is a non-profit collaborative that brings together BIPOC community leaders and solar developers to work together and build community-led, community-owned solar projects. Financial tools, like a CIGP guarantee, help PSEF provide lower-cost financing and aggregate small-scale community solar projects in a cost-effective way.
Cooperatives, non-profits, or municipal structures that are planning to, or are already supporting, community-based solar projects promoting community ownership, are invited to join PSEF as members. These groups can apply for financing for solar projects that contribute to the mission of The Fund, receive technical support to develop projects, contribute to The Fund’s decision-making processes and participate in training and peer networking activities organized by The Fund.
Community-owned, community-led solar projects enable the neighborhoods most affected by climate change to reap the benefits of clean energy. Areas that adopt solar energy experience lower cost of living, have a reduced risk for air-quality related health issues like asthma, and potentially see an increase in local jobs. As of 2021, the U.S. solar industry employed 255,037 workers. Solar also provides tax revenue to local municipalities, which in turn can fund local public services and infrastructure improvement projects. Locally produced solar energy can provide homeowners, renters, and businesses access to cost-saving benefits.
An Uphill Battle
Financing is a challenge for small-scale non-profit solar developers. Larger for-profit solar gardens are eligible for a tax credit, but these credits only apply to passive incomes that non-profit and cooperative developers do not have. Historically, private equity investors are not interested in solar gardens under five megawatts, thus the challenge is then for community-based groups to reach that scale.
Investors also have an outsized influence on smaller non-profit solar developers with few other options. If an investor asks for a heightened return on their investment, the developer will need to charge more for the electricity from the garden and the energy will be less cost competitive. At the same time, if the developer is unable to capture the tax credit, the electricity will be more expensive. There are significant advantages to clean energy adoption; however, the cost of capital for community-owned projects are high, and lenders perceive these models to be high risk.
A Financial Tool for Equity
To combat these systemic barriers in the financial field and energy industry, PSEF is pooling smaller, community-focused developers together to reach the scale needed to attract tax equity investors and lenders while securing lower borrowing rates from investors by utilizing Community Investment Guarantee Pool (CIGP) as a credit enhancement tool.
CIGP partners with intermediaries to structure financial guarantees that allow for new ways of assessing perceived risk and financing community development initiatives. CIGP focuses on solutions for climate change, affordable housing, and small business financing while centering equity and fostering innovation in the community development marketplace. To date, 16 guarantors have contributed $48.1 million in unfunded guarantee commitments.
People’s Solar Energy Fund Co-Director Mitty Owens said, “The CIGP guarantee is a great fit for the PSEF. This guarantee will allow PSEF members to finance their solar projects together in project portfolios to reduce the cost of capital while reducing the risks of shared financing.”
CIGP’s collaborative approach to community development finance allows for exploration and discovery. A key to innovation is trial and error. By carefully examining the ripple effect created by the Pool, impact can be maximized and CIGP’s model can continue to scale.
CIGP Executive Director Jim Baek explained, “Through CIGP’s emergent learning approach, we give the guarantors an opportunity to strengthen their own guarantee management capacities and grow their own portfolio of unfunded guarantees – or even scale CIGP’s model to other pooled guarantee arrangements in their regions or sectors.”
Partnerships like that of CIGP and PSEC enable learning from processes which leads to best practices pursuit of shared missions.
A New System in Action
Cooperative Energy Futures (CEF) equips members to build socially-just climate solutions through projects that ensure community ownership, enable participation by households of all incomes, and create pathways into the solar workforce for local community members.
CEF has financed and developed 6.9 megawatts or approximately $16 million of low-income-accessible community solar arrays that are cooperatively-owned-and-operated across urban, suburban, and rural Minnesota. This offsets the utility bills of over 700 Minnesota households for the next 25 years.
Timothy DenHerder-Thomas, general manager of Cooperative Energy Futures, reflected, “Take community solar. This is a really transformational shift in how we do energy in Minnesota because it’s really the first time where a state government has said, yes, somebody other than the utility has the right to put clean energy onto the grid and provide services to end-user customers, to residents, to companies, and so on. It’s made a huge difference.”
CEF is also a member of PSEF.
Through their participation in PSEF, CEF was able to successfully negotiate a loan term with a lender for 0.5% less interest than they would typically be charged. All of this is a direct result of the CIGP guarantee.
This is a key example of how perceptions of risk are reduced through the power of guarantees. By providing funding backed by a guarantee for community-owned developers, there is an expanded possibility for BIPOC leaders and community members to ensure that clean energy is accessible to their community.