What Happens When You Save a Low-income Household $90 per Month in Energy Costs

Cash-transfer programs, used to combat poverty and stimulate local economies, have taken new forms recently with the efforts of nonprofits like California-based GiveDirectly. Operating as a charity, GiveDirectly distributes funds directly to those in need, rather than supporting projects, allowing recipients to decide for themselves how to use the money. In 2010, GiveDirectly launched a massive social experiment, awarding $1,000 to 10,500 households in Kenya.

What GiveDirectly and a team of researchers found was inspiring. Households that received an influx of cash increased consumption while simultaneously boosting economic gains within their local communities. According to a recent study led by University of California, Berkeley, professor Edward Miguel, researchers found both short- and long-term benefits, with households investing funds in their immediate surroundings, perpetuating a cycle of growth. Spending on alcohol and tobacco was not seen to increase.

In rural Kenya, growth resulted from an unconditional cash transfer. In southern California, CHERP—the Community Home Energy Retrofit Project—plans to stimulate the local economy by eliminating the energy bill of low-income households, a savings of about $80 per month.

Our Locally Grown Power project (CHERP-LGP) unites science, economy, and the environment with solar energy to benefit Claremont and Pomona, California, while offering other communities a replicable model for sustainability and environmental justice.

By installing solar systems for the benefit of 6,000 low-to-middle income households, we can cut energy costs by an average of $90 each month. Over the course of one year, this amounts to $6.5 million of disposable personal income that gets channeled back into the economy.

While Southern California is not Kenya, the type of program implemented by GiveDirectly attests to the importance and promise of added household revenue. In Kenya, disposable personal income triggered what economists refer to as a “financial multiplier” - when an economic stimulus triggers further activity, adding to overall growth.

In Kenya, the financial multiplier was roughly 2.7 over 18 months. In other words, for every $10 spent, $25 to $27 was generated in the local economies. In the United States, researchers have found the financial multiplier falls somewhere between 1.5 and 2.0, leading to a potential $15 to $20 in generated revenue for every $10 spent. Our economic modeling suggests the financial multiplier of manufacturing and deploying solar technology for the lowest income households in in Pomona and Claremont, California, to be 4.5

The findings from the 2019 study of CPT success in Kenya support the argument that disposable personal income finds its way back into the local economies. With this in mind, the money freed up by our CLGP program will boost Claremont and Pomona revenues by 12% and contribute $5.5 million in sales tax revenue for the state.

CHERP-LGP aims to stimulate job creation (you can read more about that here!), compounding the overall economic gains. Not only will the extra disposable income make its way back into the local economy but a large portion of the savings will be derived from local sources.