Understanding the residential energy efficiency financing coverage gap and market potential

Access to upfront capital remains a primary barrier in residential energy efficiency adoption. Government-sponsored programs exist for low-income households while traditional financing serves creditworthy households. However, there remains a coverage gap for those with moderate incomes too high to qualify for low-income programs, but without access to friendly capital. With limited research in this space, this study aims to: (1) develop a model to estimate the number of households in the coverage gap; and (2) explore their spatial distribution. For the state of Michigan, we used data from the US Census Bureau and approximately 12,000 green bank loans to estimate the energy efficiency financing coverage gap across the state's 83 counties using a binomial mixed model. We found that credit score and income interacted to largely determine whether an applicant was approved. Households in the highest income quintile achieved a 50% chance of approval with a moderate credit score (662) while those in the lowest needed a very high credit score (715) for the same odds. Overall, this created an estimated 12% energy efficiency financing coverage gap of households statewide, with individual county levels between 0% and 24%. Broadly, understanding the market potential and spatial distribution of this coverage gap could allow impact-driven financiers such as green banks or community development financial institutions to expand programs that may offer alternative underwriting criteria. Expanding loan access to this underserved market can promote energy system improvements, policy goals, household living conditions, and an equitable clean energy transition.