HUD Issues Guidance on Solar Credits Impact on Resident Income and Project Utility Allowances

A growing number of states offer community solar programs. These programs give families who live in properties, including HUD-subsidized properties and private market rental units, access to renewable energy, even though the property itself may not be suitable for solar panels. Community solar arrays have multiple subscribers who receive benefits on utility bills that are directly attributable to the solar project’s energy generation. There are no upfront costs to subscribers, and they can receive benefits—typically in the form of an on-electricity bill credit. When there are ongoing costs or fees for low-income participants, it is typically mandated that any costs will not be more than 50% of the value participants get from their system.

HUD has issued a Notice on “Treatment of Community Solar Credits on Tenant Utility Bills.” The purpose of this notice is to provide guidance to HUD Multifamily Housing (MFH) field staff, owners, and management agents on the treatment of on-bill virtual net energy metering credits that commonly result from a resident’s participation in a community solar program. The guidance only applies in cases where tenants are paying for electricity and does not apply to master-metered buildings.

This notice applies to the following Office of Multifamily Housing Programs:

1. Project-based Section 8

2. Section 202/162 Project Assistance Contracts (PAC)

3. Section 202 Project Rental Assistance Contracts (PRAC)

4. Section 202 Senior Preservation Rental Assistance Contracts (SPRAC)

5. Section 811 PRACs

6. Section 811 Project Rental Assistance (PRA)

7. Section 236 Subsidized Mortgages

The notice outlines a two-step process to be followed in determining (1) will the credit impact the project utility allowance; and (2) does the credit count as annual income for residents.

Step One: Determine if community solar credits affect the utility allowance calculation.

  • If the credit reduces the cost of energy consumption by lowering actual utility rates, then the owner is required to submit a new baseline analysis in accordance with Housing Notice 2015-04, regardless of when the last analysis was submitted to HUD/Contract Administrator for approval.
    • Also, if the credit amount fluctuates from month to month, then the credit is tied to the cost of utility consumption, and a new baseline analysis is required.
  • If the credit is a third-party payment (e.g., not from the utility provider) on behalf of the tenant and not a reduction in the cost of utilities, the owner is not required to submit a new utility allowance baseline analysis.

Step Two: Determine if the solar credits should be considered annual income for rent calculation or eligibility determination.

  • If the solar credit is tied to the cost of consumption (i.e., the utility allowance is affected), then the credit will not count toward income.
  • If a community solar benefit appears on a household’s electricity bill as an amount credited from the total cost of the bill, HUD has determined that the credit should be treated as a discount or coupon to achieve a lower energy bill (rather than a cash payment or cash-equivalent payment being made available to a resident).
    • In this case, the credit will not be counted towards income as discounts on items purchased by a tenant are not viewed as “annual income” to the family.
    • Generally, income is not generated when a family purchases something at a cheaper rate than it otherwise would.
  • Note that if the credits are found to be third-party payments based on Step One, there may be instances when the credits are not mere discounts and must be treated as income.
    • For instance, a recurring monthly utility payment made on behalf of the family by an individual outside of the household is not considered a discount but is considered annual income to the family.

If you are evaluating the treatment of solar credits outside the program framework outlined above and require a state-specific determination and/or have general questions about this guidance, please email Lauren Ross, Senior Advisor for Housing and Sustainability at Lauren.Ross@hud.gov.

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