On Tax Bill Financing: New California Law Brings Innovative Financing to Energy Efficiency anend Rewable Projects

By Kurt J. Kammerer, K. J. Kammerer & Associates, Inc.

One of the most significant barriers to solar photovoltaics (PV) and other more expensive energy efficiency upgrades is the relatively high first cost. The size of a typical solar PV system for a home can be between 2 and 8 kilowatts (kW). The typical cost of a residential solar system averages about 8 dollars per watt, so a 5 kW¹ system would cost approximately $40,000. After a rebate from the California Solar Initiative² (which varies by utility and is reduced over time) and a federal tax credit of 30%, the final cost of this system is approximately $18,725. This results in an electricity cost of about $0.28 per kWh for the electricity produced by the PV system.

As a result, there is a significant resistance for homeowners to invest this sum of money in solar systems (or significant energy efficiency upgrades). This is particularly true when it is not certain whether the homeowner will be living in the home for a long enough period to recover the investment.

Assembly Bill No. 811 introduced an innovative “on tax bill” financing mechanism. The concept was first proposed in 2003 as an implementation strategy as part of the 2030 San Diego Regional Energy Strategy and the Monterey Bay Regional Energy Plan⁴.

AB 811 (Levine) was signed into law by the Governor on July 21, 2008 (Section 5898.12 of the Streets and Highways Code). This new law authorizes any city, county (or a combination of cities and counties) to enter into contractual assessments with property owners to finance the installation of distributed generation renewable energy sources (e.g., solar photovoltaics) or energy efficiency improvements (e.g., insulation, dual pane windows) that are permanently fixed to real property.

The capital required to pay for the projects may include funds available from any source, including the sale of bonds. The funds to repay the bonds are recovered through tax liens on the properties of the specific consumers that host sustainable energy projects. This “special tax assessment” is similar to the “Mello-Roos” charges that are attached to a “Community Facilities District” which is formed for the purposes of financing public improvements and services, such as streets, sewer systems and other basic infrastructure, police protection, fire protection, ambulance services, schools, parks, libraries, museums and other cultural facilities. In theory, the incremental cost of the tax lien would be less than the energy savings produced by the energy efficiency upgrades or the solar photovoltaic system. Although this is not the case today, the increased market activity that could be spurred through “on tax bill financing” could be the impetus necessary to significantly decrease the cost of solar PV in California and throughout the nation.

On tax bill financing is currently being pursued by the City of Berkeley, the City of Palm Desert and Boulder County, Colorado. In addition, similar programs are being considered by numerous cities and counties throughout California.

Many industry experts believe that “on tax bill financing” could be a “game changer” in terms of accelerating the use of solar PV and more costly energy efficiency upgrades in existing homes. California has been a leader in the U.S. in the pursuit of energy efficiency and renewable energy for many decades. The aggressive energy efficiency and renewable energy goals that have been set by the California Legislature will require new and innovative ways to capture additional energy savings and sustainable energy projects, such as solar PV. AB 811 introduced a new concept that could very well be the key to overcoming the primary barrier of first cost. California will continue to be the leader in innovation energy strategy, and AB 811 will play a major role in financing the sorely needed energy efficiency and solar PV that will be an important element in achieving California’s aggressive climate change goals.

Kurt J. Kammerer is the President of K. J. Kammerer & Associates, Inc., an energy consulting practice based in San Diego, California. Kammerer was formerly the Executive Director of the San Diego Regional Energy Office, has authored several regional energy plans throughout California, and is working with several cities and counties to implement on tax bill financing programs. Kammerer can be reached at (619) 546-6175 or kjk@kjkammerer.com.

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¹ A typical home in California consumes between 4,800 to 9,600 kilowatt-hours (kWh) per year and a cost of between $720 and $1,440 per year. In order to offset the total electricity consumption, the system size would need to be between 3.4 kW and 6.7 kW.

² See http://www.gosolarcalifornia.ca.gov/csi

³ Assumes insolation of 1,500/kWh/kW, system financed at 6%, solar efficiency degradation of 1% per year, inverter replacement every 10 years, initial electricity rate of $0.15/kWh, an electricity rate escalation of 3.5% and an operations and maintenance cost of 1% per year.

⁴ See http://www.ambag.org/programs/EnergyWatch/regional_plan.html

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