For decades, the push for solar power has stalled not on public support, but on cost. That might be about to change with the launch of a unique tax program that's exciting some industry veterans.
Gary Garber is one such veteran. Garber built his first solar panels from scratch back in 1976. They went up on his parents' roof top in nearby Walnut Creek, Calif. Today he runs Sun Light & Power, a 60-employee solar panel installation firm that's been behind some of the San Francisco Bay Area's biggest solar power arrays.
Like many other "alternative" industries, solar energy has gradually gone mainstream, scaling up operations, driving down costs — even partnering with local governments to promote renewable energy.
Yet it still generates less than 1% of the nation's electricity. Why? Because a typical residential system's $25,000 price tag is a huge hurdle for most homeowners.
Clearing that hurdle is the main mission behind an effort gaining momentum around the country called Property Assessed Clean Energy, or PACE. It allows people to borrow money from municipalities for energy efficiency upgrades and pay it back through their property taxes.
Gerber said the key to the program's success is that energy savings paid for by PACE can be used to offset those higher property taxes.
"Let's say you replace your $100 utility bill with a $100 a month payment to your property taxes–it's pretty close to a wash," said Gerber, who also serves as president of the California Solar Energy Industries Association. "And if it isn't a wash this year, then two or three years from now it will be, because energy costs are going up.
"You're basically saying, 'I'm going to pay the same amount for energy for the next 20 years. I'm going to peg my energy cost to today's costs.' That's pretty compelling."
PACE was launched in 2007 as a pilot project hatched by Cisco DeVries, a former assistant to the Berkeley mayor. When the Berkeley test took off, states began passing legislation to allow municipalities to create their own programs. DeVries now works as president of Renewable Funding LLC, a private company that helps cities start PACE programs.
At last count, 19 states have passed PACE legislation, including California, Florida, Texas, New York, Massachusetts and Maine.
Some local governments, such as Sonoma County, Calif., in the San Francisco metro area, and Boulder, Colo., have set up PACE programs on their own. Sonoma's is called Sonoma County Energy Independence Program.
Santa Rosa, Calif., resident Ed Smith said he heard about the county program a few months ago at a local home improvement show and decided to give it a try.
Smith had 32 solar panels installed on his home at a cost of about $5,000, including a discount for being among the program's first participants.
He figures his property taxes rose $100 a month while his electric bill has dropped as much as $300 a month over the past four months.
"It's been totally fantastic," Smith said. "We'd been wanting to do something green. I've been recommending it to my neighbors. It would be a great thing for schools to do since they have flat roofs that catch a lot of sun. Plus school districts need to save money."
Preaching PACE benefits
John Haig, Sonoma County energy and sustainability manager, said there was a surprisingly strong response to its version of the PACE program. Its energy improvement loans charge 7% interest and participants can choose to pay them off in 5, 10 or 15 years.
So far, Sonoma County has been paying about $2 million a month for energy improvement projects. Haig said the money has helped local contractors withstand a slowdown in residential construction.
Sonoma County initially put up the money for the loans, but plans to issue bonds or other debt instruments backed by property owner payment schedules.
"The appeal of the program is inherent in the financing model," Haig said. "It provides an ability of people to get over the first cost hurdle, which is what stops many people from doing these sorts of projects, and allows them to keep the financing with the property should they happen to sell it.
"They don't have to feel like they're going to have to pay for a solar array that they're leaving in the home in five years, because it stays with the property and the next person picks up the cost," Haig said.
Wells Fargo sees opportunity for PACE bonds
Wayne Seaton, head of the sustainable public infrastructure group within Wells Fargo Securities' (WFC) government & institutional banking unit, said his group has been helping municipalities set up the necessary financing.
"Our role would be to enable municipalities to acquire funding mechanisms for PACE programs and to arrange for cost-effective financing," Seaton said. "As PACE evolves, we're confident you will see financing mechanisms coming to the marketplace including bonds."
Berkeley Mayor Tom Gates said his city is planning to pool resources with several other communities under a program called California First to relaunch its PACE program this year, three years after the pilot program.
"We're really happy that this is one of the programs that got started in Berkeley and it's just taken off like wildfire," he said. "We found that as good as the program was, you actually need to go to scale."
Banding together with other communities will help cut administrative costs, he said.
"This is actually a free-market approach, believe it or not, that started in Berkeley; a free-market approach to take solar and make it go all over the United States," Gates said. "It's all done through lenders putting up the bonds and placing it on the property. So it's a good mechanism that's shown it can travel."
Solar panel installer Gerber said other issues also need to be worked out, such as keeping interest rates low and assuring that contractors are paid promptly.
In the wake of the real estate crash, Fannie Mae (FNM) and Freddie Mac (FRE), which guarantee many U.S. mortgages, are taking a close look at PACE loans. Some are wary of a program that would increase debt levels while home prices continue to drop.
"It's got all the right economics to take off in a huge way and then cause huge losses," David Felt, a retired senior Federal Housing Administration lawyer, told The Wall Street Journal recently. "When you're able to market to people who can't get financing for an ordinary home-equity loan, that should set off alarm bells."
Gates said borrowers must have a good credit rating and equity in the home to qualify. He said the federal government could guarantee PACE bonds and help keep interest rates lower.
Pondering a resurgence
Shortly after Ronald Reagan won the presidency in a 1980 landslide, the solar panels installed by Jimmy Carter came down from the White House and the nascent solar business went from a new hero of the energy business to a near zero.
Over the next 15 years, a period of cheap fuel prices and little government support, Gerber figures 95% of California's solar businesses went bust. But he hung in there.
"I had found what I loved to do," said Gerber, who kept busy servicing existing solar water heaters and construction projects. "It didn't even occur to me to stop doing this."
Toughing it out paid off for Gerber as the nation gradually turned its attention to achieving energy independence and lower greenhouse gas emissions. These policy shifts — and higher fuel prices — brought the solar installation business roaring back.
A nationwide solar tax credit now allows home owners to deduct up to 30% of the cost of their solar panels from their taxes, a program Congress has extended to 2016.
In addition, California and many other states require power companies to pay home and business owners for surplus power generated by solar panels through a program called net metering. That gives solar power owners the thrill of seeing their electric meters run in reverse as their surplus power flows onto the grid.
Meanwhile, utilities such as Pacific Gas & Electric Corp. (PCG), California's biggest electricity provider, have been investing heavily in solar and wind power to meet strict state-imposed renewable energy requirements.
Another boost comes from power-purchase agreements in which home owners and businesses buy electricity produced by solar panels owned by someone else. This approach is being championed by SolarCity.
The Solar Energy Industry Association, the industry's national lobbying group, is promoting an investment tax credit to defray solar panels' manufacturing costs.
These and other programs helped U.S. solar power capacity jump 37% last year, according to the SEIA.
Yet Gerber said the industry still needs subsidies to compete with fossil fuels, which already receive ample government support.
"We're getting to what we call grid parity, with the … cost of solar energy getting closer and closer to the standard cost of conventional fuels, which are subsidized," he said. "If we took those incentives away for oil and coal and nuclear, solar would win right now."
Incentives or not, solar energy continues to draw support from non-profits, businesses and individuals looking to generate electricity with few environmental risks.
In one of its high-profile projects, Gerber's company installed a 66-kilowatt solar panel array from SunPower Corp. (SPWRA) at Berkeley's David Brower Center, a large facility housing nonprofit groups and other tenants. The building's includes real-time data on the amount of electricity being generated.
Amy Tobin, executive director of the center, provided a quick tour of the roof on a recent cloudy day and said that people often ask to see the solar panels.
"It's amazing," she said. "Look … it's raining and we still have energy being generated by these panels on the roof."
Gerber said he's happy to see solar becoming more mainstream, but still laments the years when America mostly turned its back on solar power.
"We have a technology that, if we had stayed on the right trajectory, we would not be talking about the energy crunch that we're looking at today," he said.
