Green Wombat

From my perch in the Berkeley Hills I look down on a sea of roofs stretching toward San Francisco Bay. A glint here and there in the California sunshine telegraphs that someone has installed a solar array. But even in this most ecologically self-conscious of cities, homeowners face a familiar conundrum: cutting the utility cord and your home’s greenhouse gas emissions means coughing up some serious cash. A residential rooftop solar system can cost anywhere between $15,000 and $30,000, and it can be up to a decade before the array pays for itself in electricity savings. Rebates through the $3.3 billion California Solar Initiative help and the program has been a great success so far, but its goal of a million solar roofs by 2017 will cover just a fraction of the state’s households.

Now the city of Berkeley has devised an innovative plan that could dramatically increase that number and turn the nascent solar industry into a mass market if replicated. Under a solar initiative to be considered by the city council on Tuesday, Nov. 6, Berkeley would finance the installation of solar arrays and solar hot water systems (more on that later) for any homeowner or commercial building owner. You choose an installer from a city-approved list and retain ownership of the solar system, paying back the cost over 20 years through an assessment on your annual property tax bill. “Over next decade we could have solar on 25 percent of the buildings in Berkeley,” Cisco DeVries, chief of staff for Berkeley Mayor Tom Bates, told Green Wombat. The federal government is supporting the Berkeley initiative — the first of its kind — and California’s largest utility, PG&E, backs the plan.

Here’s the game-changing aspect of Berkeley’s proposed Sustainable Energy Financing District: When you sell your home the solar array and the tax surcharge stays with the property, passing on to the new owner. In other words, there’s little risk that you’ll lose money by going solar. And given that a solar array generally boosts your property value — in California, at least — you’ll likely to come out ahead. (When Green Wombat’s Fortune magazine colleague, Michael Copeland, installed solar on his new Berkeley home, the appraised value immediately jumped nearly $13,000.) What’s more, as a property tax the solar assessment is a deductible on your federal income tax return. Banks now offer solar home equity loans that similarly allow property owners to install an array with no upfront costs. But the catch is that when you sell your home, you pay back the loan from the proceeds. With the city financing your solar array, you’re just on the hook for the annual property tax surcharge for the time you own your home.

Given that the city will likely put up a bond to borrow millions of dollars, DeVries expects to obtain a lower interest rate than what would available through a solar home equity loan. “Because this is an assessment on your property bill, effectively a lien, it’s a very secure position for financing,” he says. “In event of foreclosure, it’s paid before the mortgage.”

The program also will finance the installation of solar hot water systems, which for Berkeley and other temperate zone cities could be a real environmental and economic boon. Solar thermal systems that tap the sun’s rays to heat water are widely used in countries like China but have not caught on in the United States. But they make perfect sense for cities such as Berkeley, where moderate weather means that much of residents’ utility bills is not for electricity used to power energy-sucking air conditioners but for natural gas that heats water for bathing, cooking and running dishwashers. “You would be able to displace natural gas and get a much more direct environmental benefit,” says David Rubin, PG&E’s (PCG) director of service analysis, who helps run the utility’s solar rebate program. Solar hot water also will help Berkeley meet a voter-approved mandate to fight global warming by reducing the city’s greenhouse gas emissions 80 percent by 2050.

Just how much extra homeowners will pay on their property tax bill depends on the size of the solar array they install and the terms of the financing the city is able to arrange. But DeVries says some preliminary calculations show that a $15,000 solar array might add $1,300 to a homeowners’ annual tax bill. (It should be noted that Berkeley residents are accustomed to such surcharges. Green Wombat just got his 2007-2008 property tax bill and counts 18 local surcharges, ranging from fees for mosquito control to school classroom-size reduction.) While it will hit them in the pocketbook at tax time, Berkeley homeowners, if they install the appropriate size solar array, can count on free electricity year-round. California is a so-called net-metering state, which means that electricity produced from a residential solar panels is fed into the power grid; in return homeowners receive a credit that can zero out the cost of the energy they consume.

No surprise that the solar industry is enthusiastic about the Berkeley’s initiative, which has the potential to provide a big boost to their business if other cities copy the program. Among those that stand to benefit are installers and solar cell makers like SunPower (SPWR) and Sharp. “It just seems like it’s a great model for other cities to look at and hopefully to emulate because it really advances homeowners’ access to solar,” says Ron Kenedi, vice president of Sharp Solar, one of the world’s biggest solar panel makers. Sharp supplies arrays to many of the installers Berkeley is likely to include in its program. “We found that solar powered homes are easier to sell and move faster on the market. And they gain value over time.”

Says Barry Cinnamon, CEO of solar installer Akeena Solar: “It’s going to raise awareness of solar. I think there will be a big spill-over effect, especially if starts to work. If they can aggregate the financing, it definitely helps lower the cost of solar.”

DeVries has been meeting with solar installers and already has had discussions with PG&E about what support the utility can provide to the program. For PG&E, a big spike in residential and commercial solar could potentially ease the cost and environmental impact of peak power demand. “Having the city finance solar through a property tax assessment is a good idea,” says Rubin. “Additional amounts of solar do help reduce demand.”

Lest you think this is just another wacky notion from Berkeley’s left-winging politicos and social engineers, consider that two Bush administration agencies have lined up in support of the initiative. The U.S. Department of Energy has given Berkeley a $200,000 grant that can be used in part to promote the Sustainable Energy Financing District while the U.S. Environmental Protection Agency is about to sign off on another $160,000 to get the program off the ground and create a guide for other cities.

If approved by the city council next week, DeVries expects to begin signing up homeowners and business owners by June 2008. “I just got an e-mail from a large-scale commercial property owner interested in the program,” he says.