SOLAR COST AT NEW P.A.C.E.

A lighter burden; A promising way to defray the cost of going green
January 28, 2010 (The Economist)

"Switching to solar power may help to save the planet. Homeowners, however, aren’t so sure it will save them money. Energy costs may be lower…but the initial expense of installing solar panels puts many people off.

"…[T]he city of Berkeley, California…has just completed a pilot programme in which it lends homeowners the money to put panels on their houses. The owners repay the loans over a period of years through an extra charge on their local property-tax bills. The city raised the money to lend by issuing a Property Assessed Clean Energy (PACE) bond, a type of financing geared specifically to making properties more energy-efficient. In the past year 13 states have adopted legislation enabling municipalities and finance companies to issue PACE bonds. Another, Arizona, has a law pending…"

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"Berkeley’s programme was small [and the only one so far directed exclusively at solar power]…[I]t started with only $1.5m…Although 40 homes were signed up at first, 27 withdrew, mostly because their owners found cheaper home-equity loans…The bonds the city used to finance the programme paid a yield of 6.75%; once administrative costs were added, homeowners ended up paying the equivalent of 7.75%. Some people ran into further costs when roofs had to be strengthened. Getting building permits was not always straightforward."

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"But supporters are undeterred. The bond’s interest rate was so high in part because it was launched during the financial crisis, they say. The addition to the tax bill for the pilot programme, $2,000-4,000 a year depending on the type of installation, is offset by savings on homeowners’ energy bills.

"Bond investors can take comfort from the fact that tax obligations rank ahead of mortgage loans if homeowners get into financial difficulties. They also benefit from municipal bonds’ tax-exempt status. The state of California is considering expanding the programme by another $25m and taking it to surrounding counties. Renewable Funding, the investor in the Berkeley bond, says it is setting up similar agreements with other local governments."