BREAKTHROUGH BERKELEY SOLAR FINANCE PLAN APPROVED

By now, just about anybody who cares has heard Tom Friedman tell Cal Tech Professor Nate Lewis’ story illustrating the problem for rooftop solar installations: A cell phone was easy to sell at initial expensive prices because nobody had one. Solar energy-generated electricity is a tough sell at initial high prices because electricity is already widely available.

Somebody once commented to NewEnergyNews that having a solar system should be to a homeowner the same as having a refrigerator. Wrong. Having a solar system should be like having an electrical system.

Nobody would buy a house without an electrical system or, if they did, they would expect to install one. But nobody would try to sell a house without an electrical system without making the installation part of the larger negotiation.

The cost of a solar system, independently undertaken, makes it necessary for homeowners who want solar to take on, even with federal, state and local subsidies, grants and tax credits, an extra financing proposition. Eventually, the system pays off, usually handsomely, but not everybody can qualify for the initial loan or handle the cost burden (especially these days) until the almost-free electricity starts coming after 5-to-10 years.

Among the many ideas to get around this burden of rooftop solar installations, the City of Berkeley may have the best. It is such a good idea that cities from around the country and around the world are asking about it even though it has not yet been put into practice.

The city will get a big line of credit and a therefore low interest rate from a lending institution. That’s more challenging now than when the plan was first developed but the city can still, as when the plan was envisioned, get more money at better rates than most individuals.

The city will, in conjunction with solar experts, establish a standard system size, installation cost and interest rate, based on very large-scale purchase and financing parameters. It will qualify homes and buildings based on their ability to harvest solar energy-generated electricity. It will arrange installation and maintenance. And it will collect from the building owners via property taxes (over a 20-year period), without any especially complicated extra paperwork or bureaucracy.

Theoretically, owners’ lower electricity bills will offset their higher property taxes.

If ownership is transferred, the system goes with the ownership and becomes the new owners responsibility.

Anybody in the city who pays an electric bill and property taxes and whose house has solar energy-generating potential will be able to afford putting solar panels on their roof.

Entrepreneur Lyndon Rive’s SolarCity is a version of the Berkeley plan for folks who live in municipalities less progressive than Berkeley. SolarCity goes into communities with big financial resources and organizes group buys. The SolarCity volume discount approach is good, but isolated communities cannot exert nearly the price discount pressure as that of a city the size of Berkeley. And SolarCity’s for-profit mechanism adds a layer of financing procedures and paperwork that makes only affluent cities good prospects.

Other financial mavens have concocted a private version of the Berkeley solar plan. It is called a power purchase agreement (PPA). PPAs fill the gap where progressive, ambitious city government is not available and SolarCity has not arrived.

In a PPA, the homeowner agrees to allow a finance company to install panels on the roof and to buy the electricity generated by the system for an extended period of time at a fixed rate. The finance company hires a subcontractor to install and maintain the system. It then works out the financing and uses various tax advantages and other subsidies to profit over the long term. The homeowner is like a property owner where a utility (in this case the financier) installs a power system.

The PPA will appeal to the investment-minded but it involves a somewhat complicated, unfamiliar financial arrangement with an unfamiliar business entity that is essentially out to make a profit.

The Berkeley arrangement is the most straightforward concept NewEnergynews knows of to deal with the upfront costs of a solar system. It does not add a complicated scheme to a homeowner's other headaches or bureacracy to city government. It just adds solar power to the electrical system.

Footnote: What kind of building in Berkeley is deemed suitable for a solar system? Kevin Gage, sales manager, Borrego Solar: "Anyone who has a roof facing southeast to due west would have a good roof for solar. If you have a lot of trees, that might be a factor, but there is increasingly more and more technology that can harvest more energy from sites that have shading from trees."

The price of solar is coming down because of the many efforts to increase volume. (click to enlarge)

Berkeley approves program to loan money to residents for solar systems; Program is first of its kind and would help homeowners with cost
Kristin Bender, September 18, 2008 (Oakland Tribune)
and
Berkeley council to vote on solar tax district
Carolyn Jones, September 15, 2008 (San Francisco Chronicle)

WHO
City of Berkeley, CA. (Tom Bates, Mayor; Christine Daniel, Deputy City Manager); Berkeley City Council; Kevin Gage, sales manager, Borrego Solar

WHAT
The Berkeley City Council unanimously (8-0) approved the Sustainable Energy Financing District creating a special tax district to enable property owners to install solar systems with the city paying the upfront costs.

Solar Power Solutons' offers PPAs on the logic in this schematic. (click to enlarge)

WHEN
- November 2006: Berkeley voters approved Measure G, requiring the city to cut its greenhouse gas emissions 80% by 2050.
- 2007: The City Council began developing the Sustainable Energy Financing District.
- September 16: Final City Council approval.
- Remaining: A deal with a bank or lending firm to finance the project.

WHERE
- Berkeley, with Measure G, was the first U.S. city in the nation to ask every man, woman and child who lives or works in Berkeley to help cut the city’s carbon footprint.
- 4,000 homes of roughly 25,000 residential and commercial properties in Berkeley can benefit from having solar systems on their rooftops
- Inquiries about the program have come from Hawaii to Massachusetts as well as from Europe and Asia.

WHY
- 80+% Berkeley voters approved Measure G.
- The plan: The City of Berkeley gets large financing at a low interest rate, pays all the upfront costs, handles all details, collects through property taxes over a 20-year period.
- Each system: $20,000-to-$22,000.
- Homeowners pay ~$182/month added to property tax assessment, at least partially offset by electricity bill savings.
- Property owners get the city’s interest rate which should be lower than any rate they would get individually.
- This is a first-of-its-kind program.
- Pilot program: ~$1.5 million to finance ~50 homes.
- Borrego Solar installs ~20 solar systems/year in Berkeley but expects that to balloon.

click to enlarge

QUOTES
- Kevin Gage, sales manager, Borrego Solar: "I really think that there is a huge advantage, especially in this current financial market…If a city, with their leverage and their security, can get this money, it seems like there is very little risk in that because they have the collateral of the whole home. If you were a lender, you'd be more secure in giving to a city than a single person. It's a great way of financing for renewable energy that benefits everybody."
- Tom Bates, Mayor, City of Berkeley: "If this works, it'll be the most important thing we've done to fight global warming and climate change…But the devil's been in the details."