Many of us could make money by investing in energy efficiency improvements and solar systems for our homes. Yet we stubbornly resist making these improvements. Why?
Buying power from your utility is a simple, pay-as-you-go service. Solar and energy efficiency projects, on the other hand, require tens of thousands of dollars up front and a long-term commitment to see a return on investment. Put another way, how many of us would have cell phones if we had to buy 20-years of minutes upfront? People are simply uncomfortable with pre-purchasing 20-years of electricity, even if it is a good deal.
We can turn our homes and business to clean energy quickly, but to do so we need to make paying for solar and energy efficiency projects in our homes and businesses much more like paying our utility bill. Under a plan proposed by Mayor Tom Bates, the City of Berkeley is now pioneering what many experts believe may be just such a solution: Berkeley FIRST.
Berkeley’s program launches on Nov. 5 and it has generated a great deal of discussion and interest. This is a short summary of how it works.
Berkeley FIRST
Berkeley FIRST (Financing Initiative for Energy Efficiency Renewable and Solar Technology) allows property owners to install solar systems and make energy efficiency upgrades with no upfront cost.
Berkeley pays the upfront costs through the issuance of a new kind of municipal bond. The bonds are repaid from a new line item on participating property owners’ property tax bills over 20 years. Participating property owners pay for only the costs of their energy project.
The program is 100% “opt-in” and property tax expenses remain unchanged for those who choose not to participate.
The result: solar and energy efficiency projects are paid for over a long period of time, in bi-annual installments. The interest rate is fixed. Property owners do not need to access their own capital or credit. And if the owner sells the property, the repayment obligation transfers along with the property itself.
How does it work?
Berkeley FIRST is just a new twist on a common method of financing improvements in communities. California, like most states, has long provided cities and counties with the power to pay for certain projects such as sewers, parks, and the undergrounding of utilities by passing the cost directly on to the property owners that benefit from the project.
To do this, the city creates a “land-secured” financing district that includes the properties that would receive a benefit from the project. It then sells bonds to cover project costs and the property owners who receive a benefit — connection to the municipal sewer system, for example — pay back the costs through an addition to their property tax bill.
Berkeley created a slightly modified version of this type of finance district — in their case, a Mello-Roos Community Facilities District — that allows for the financing of energy efficiency and solar projects on private property. The California legislature has now authorized all cities and counties to follow suit using a similar type land-secured finance district, called a Contract Assessment District, with the passage of AB 811. The City of Palm Desert has created its own innovative new solar and energy efficiency financing district using this method.
(Many other states have similar laws. Vote Solar has put together useful information and resources on the program, along with a review of relevant state laws in 20 other states that might want to replicate the model.)
There are a couple other significant changes to the usual financing district. First, the Berkeley FIRST program is entirely voluntary. You only pay additional property taxes if you “opt-in” and you only pay for the cost of your project. Second, the City is a private financial partner to handle the financing and bond purchase for lots of small projects instead of the usual one large, expensive project.
Property owner experience
The process for a Berkeley property owner is fairly straightforward. They apply to the program online through a dedicated Berkeley FIRST website. Assuming they are not late on taxes or in foreclosure, the property owner then receives a reservation for funding. They have nine months to install their solar system and return to the website to request a funding. After signing forms and providing documentation, the check is issued to the property owner. Behind the scenes, a tax lien is placed on the property and a small bond is sold to provide the funding necessary to pay for the project.
The City contracted with Renewable Funding to finance and administer the pilot program. (Full disclosure: I now work with Renewable Funding though not directly on the Berkeley program.)
Who is next?
The takeaway message is that there is no reason for your community to wait. Berkeley and Palm Desert are underway with exciting new financing programs. San Francisco and Boulder County, Colo., are in the process of adopting their own programs, with at least two dozen more in the wings.
A study soon to be published by a team from the UC Berkeley Renewable and Appropriate Energy Laboratory found the potential for this type of financing to go national — investing $240 billion in renewable energy and energy efficiency, reducing 37 million metric tons of CO2, saving homeowners an average of $190 a year, all at no net cost to government.
Let’s get started!
