Never heard of municipal solar financing? You probably will soon.

Published on March 4, 2009 by Dan Hahn.
Categories: Solar Politics, Solar Trends.

image courtesy of tsevis on Flickr

President Obama comprised of our state flags. I thought it was a little funny he’s just so.. Alabama? Well, if he was all Arizona, he’d look like a blueberry and that would just be silly.

As most of you are well aware, the President recently signed a $787 Billion dollar stimulus package. Many people I come across say seemingly the same thing when they learn I sell commercial solar energy systems: “That stimulus was good for you, huh?” All I can really mentally, logically muster is a, “Yeah, sorta”.

In all actuality there was no huge groundbreaking solar energy legislation included in this bill that will translate into an immediate “stimulus”. Most people seem to think solar energy companies would be in line to receive billions of dollars in funds in a similar fashion as Citibank, GM, etc. This was simply not the case, nor will it be the case. However, there was some positive to come from the bill:

First, the 30% federal tax credit for businesses was converted into more of a grant arrangement. This was crucially important because more and more businesses simply do not have the tax liability for the incentives to have much of an effect. Cash is now king, and legislators took note.

I’ve yet to see how this will actually work and I’ve heard rumblings the Fed will actually be cutting checks in the very near term. This is all new, so there’s a lot of new processes to be developed. No word yet on whether this grant money will be considered taxable income or not.

The main concern is, even if the government goes ahead and fronts 30% of the upfront cost, businesses by and large are not prepared to fork over the other 70%. Couple that with our banking system’s inability to lend out any new money for such projects, and you’ve got a somewhat ineffective “stimulus”.

Second, the IRS tax code was clarified to allow homeowners to take both the federal tax credit and participate in municipal financing arrangements for solar power. Now this could potentially be much more of an interesting development.

A few weeks ago I had a substantive phone conversation with Nina Erlich-Williams who represents Renewable Funding LLC. If you’re new to the idea of municipal financing for solar power like I was, (I had to back up the conversation a few times to really wrap my brain around the idea) you’ll want to perk your ears up a bit.

Here’s how it works: First, state legislatures enact a law which enables municipalities in the state to issue a bond for solar energy. Next, municipalities do a study to see how many of their residents would likely participate in the program. Then, municipalities announce to their residents they will cut a check for the total installed amount for a solar energy installation in exchange for a property tax increase which gets paid off annually for 20 years. The interesting thing is, there’s no credit application. The home is collateral and the homeowner is not saddled with the property tax increase if they sell their property before year 20 – the new homeowner is. Finally, the municipality sells the bond obligation to a company such as Renewable Funding to handle all of the transactions and provide administrative oversight.

Programs like these have launched already in the California cities of Berkeley, Palm Desert, San Diego, San Francisco, Santa Monica, Sonoma County and Solana Beach. The Colorado legislature also has made the necessary provision for municipalities in that state to do the same. Legislation to set up the program has been introduced (or is being finalized) in Oregon, Nevada, New Mexico, Arizona, New York, Vermont, and Texas. Other states that have expressed interest include New Jersey, Michigan, and Washington. If Berkeley was any indication for a success of the program, things are looking rosy for this type of funding mechanism. Berkeley’s multi million dollar bond allotment was all spoken for by residents in less than a week nine minutes.

Now, while billions of taxpayer dollars were not spent in this tax code clarification, that was sound legislation which will undoubtably lead to more jobs and solar on roofs. While many clamor for feed-in tariffs like those that were in place in Germany for the past decade, we’ll have to wait and see how this type of funding mechanism compares.

These are not bangzoom provisions for solar, but they are a definite help. I’m expecting bigger things from this administration and am confident in 2012 we’ll have cap and trade programs in place coupled with feed-in tariffs to really get our industry moving. If not, the idea of Obama being comprised of the Alabama state flag might not be too far off the mark.

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