Following up on this discussion about the mayor's solar panel initiative, I wanted to make a point clear.
Look, what the mayor is trying to do -- by implementing the Assembly Bill 811 -- is great. He's trying to take down giant hurdles in the way of people putting solar panels on their homes. With this bill, and it's successful implementation, no longer will someone have to come up with tens of thousands of dollars up front (or in personal debt) to install solar panels.
This, again, is a big step. But it doesn't get us to the top.
The fact is if solar panels could actually be cost neutral or even save people money, it could really spark the economy in a way that other historic phenomena have ignited it in the past.
But if it just makes a luxury -- protecting the environment -- a bit cheaper, it might create a cottage industry and lessen partly the demand on our electric grid, but it certainly won't be a paradigm shift.
And that's why this discussion about the interest rate banks will be charging citizens for these loans is so important.
If cost is everything standing between, on the one hand, helping a few wealthier enviros equip their homes with solar panels and, on the other, provoking a historical economic boom around clean technology, then I think we should be obsessively pursue and eliminate every cost imaginable. Someday we could chisel it down into the affordable zone -- the point where everything changes.
As we were discussing this, Thursday and Friday, I heard from Andrew McAllister, the director of programs at the California Center for Sustainable Energy.
He wanted to put perspective on my contention that there seems to be very little reason why San Diegans should have to pay a 7 percent interest rate on a loan to install solar panels when that loan is tied to the property and virtually as safe from default as any offering in existence.
After all, home equity loans are going for much less, yet lenders are taking much more of a risk to make them.
McAllister had this to say in an e-mail (and he provided this link to some more background):
There is more to discuss on how this financing instrument might evolve over time as cities/counties gain more experience and increase their comfort level with the approach, for example with respect to the applicable rates; utilizing the market to access different sources of capital, and the potential for going to tax-exempt rather than taxable bonds, among other issues. Setting a “program rate” requires essentially locking in a rate well before the actual loan happens, so if the rate is to be advertised it must be somewhat higher than a [home equity loan] today for example, since the finance source is taking on some forward risk.
In other words, one of the reasons this ultra-safe loan for the banks might actually cost more than a home equity loan is that we have to lock in rates many months in advance.
Not very convincing. Maybe I'm being naive but this still doesn't change the dynamics of the risk in my mind. If I had a tremendous amount of capital and I knew I could invest it in a loan program that gave me a virtually guaranteed return of say, 6 percent minus fees, I'd be all over that. Why are Berkeley residents paying 7.75 percent then?
Again, if someone else can point to where there's more risk in this than I'm seeing, please, by all means, do so. But as it stands now, if a homeowner takes the loan, even if the homeowner goes broke and walks away from the house, the lien remains on the property and the balance will have to be paid by whoever takes over the property tax payments. The payback seems like a lock -- even if the solar panels fall through the attic.
McAllister had more points of cautious optimism.
Also, any currently perceived legal hurdles will surely be resolved in the coming months, which will bring more clarity to the actual constraints around the property-tax model, also decreasing uncertainty. Obviously, any actual program would have to provide financing transparently.
In other words, I think he means that there's some question as to whether it's legal to put this on the property tax bill. Interesting. Can anyone elaborate on that?
Finally he had this point:
... it may well be that a person who knows they are going to be in their home for 10+ years and can qualify for an [home equity loan, or HEL] or refinance at a good rate would choose to do that over the municipal tax option -- and this is fine. Many or most people, particularly these days, are not in such a position. First, many are not sure of their permanence in their current home; this is the number one impediment to closing sales that solar installers indicate. Second, the majority of those applying for refis and HELs are being rejected; rates may be low, but banks are not actually lending that much. In my view the focus on rates is important but not critical.
So, in other words, he's saying that since people think they might not be in their home for long, this program allows them to still take out a loan to put in solar, without worrying that they are going to be burdened with it like some kind of student loan or other debt that follows you around through your life from house to house like a huge stinky rat.
And, McAllister is saying, we shouldn't worry about rates because this freedom, the incentive it provides to get solar and get solar now, and the consequential effect that will have on our environment and energy economy make it all worth it.
This is a bit of a mistake, I think. Again, I can identify no single risk factor or hurdle in the way of making these loans more affordable. And yet, the cost of incurring them will undoubtedly be the highest hurdle in getting people to consider them.
The Mayor's Office says its goal is not to make the decision to go solar a cost-neutral one for homeowners, but merely to take down some of the obstacles in the way of it. McAllister says the focus on rates is important but not critical.
It is a mistake to have these two low expectations, I think.
Look, I know there's not a huge difference between 6 percent and 7 percent for the interest rates. Remember the story the other day: At a 7 percent interest rate, a person borrowing from this program to install $30,000 solar panels would pay $135.68. Then, this person's electric bill would drop about $72 a month, meaning they're going to have to come up with $63 more a month to have the solar panels and the warm green feeling running through their body.
With a 6 percent interest rate instead, the resident would have to pay $104.92 a month for solar. Subtract the savings from the power bill and the total hit they'll have to take on in addition to what they already pay is $32.24.
Obviously, if we make it $30 more expensive it's not going to change the world. And if the mayor can't negotiate to get us that $30 a month, it probably wouldn't change the dynamics of this thing too much.
But it’s the one cost factor the city officials can control now. And if they do control it and they can work to lower the costs elsewhere, maybe we'll actually reach the point where people actually save money by installing solar.
I'm telling you, if I'm a solar panel salesman, the difference between telling someone they only have to spend $30 more a month to have these beautiful panels and telling them that they actually can save money is like the difference between eating a gas station hoagie sandwich and eating lobster sherry bisque at a fine restaurant.
Unfortunately, the only way we're going to get to a truly solar and renewable energy frenzy is to do all we can to make it as cost neutral or even as profitable as possible. And if one step in getting there is negotiating better loan terms, let's go obsessively toward that goal, not just pay it lip service.
Finally, as you may have noticed, there was a good exchange below. At one point, Rachel Laing, from the Mayor's Office, had this to say:
We intend to get as competitive a financing rate as possible for participants. The city gains nothing from having higher financing rates; this is a cost-neutral program for the city.
This might not be entirely correct.
Erik Bruvold, from the National University System San Diego Institute for Public Policy Research, or News Dipper, responded with an interesting observation:
... not to get too picky but Ms. Laing misses an important point ("The city gains nothing from having higher financing rates") -- the city WOULD get something from that: a better deal from the lender in respect to the fee paid to the city for "administering" the program. In the case of Berkeley ("Initial and on-going City and County Administrative fees are built into the rate and add approximately 1% to the rate.") So on a $25,000 system in Berkeley, that is about $200 a year to the city and Alameda County for "administrative costs." Good work if you can get it.
Not to get too picky...
Let's conclude with one point.
I keep talking about this because I'm way into it. I'm not trying to derail it. It's very intriguing and, in a way, ingenious. Helping homeowners finance the installation of solar and then attaching it to their property taxes and not their own credit is just a great idea. Hats off to the Bay Area people who came up with it.
However, I cynically believe that the only way we can truly foster more environmentally friendly ways of powering our homes is to make it not only a morally good thing to do but an economically advantageous thing to do. I know I'm not alone and that's not an altogether unique insight.
This program, to me, seems like a step that puts us almost there -- a leap forward to where powering our own homes might be good not only for the environment but also good for our wallets. It's the kind of advancement that if economically advantageous could provoke a true economic mania. It has the chance of actually doing the two things the mayor wants to see happen: create jobs and clean up the environment.
So that's why I'm stuck on this: If the boosters of this program aren't wholly focused, if not obsessed, with making this project more economical, I think they're at risk of failing to reach their beautiful goal of giving this economy a major reason to get out of bed.
Editor´s Choice The reader comments you won't want to miss. (Editor's Choice selection do not represent the views of the editors. They are comments that seem to add to the discussion as opposed to less productive insults or arguments.)
Let's hope that the interest rate comes down as credit markets unfreeze but at present, most solar buyers can't even get traditional HELOC's. When calculating payback, you have to look at the 10-year cost of electricity from SDGE, which has been going up 8-10% and compare that to the 10-year cost of solar, which is fixed. Using this math, most residential customers can get a payback in 10 years or less. Finally, in a truly competitive marketplace, electricity produced with solar has a premium value compared with carbon-based electricity, especially if a carbon-cap is imposed in the future. Large corporations like Kinko's-Fedex are paying 30-40 cents per kWh for 100% renewable energy but SDGE solar customers must settle for 13.7 cents because that's the utility's base rate. If solar customers could sell their power for what it's really worth, their payback would be much faster.
So let's take that 6% number, and say we're $30/month short of making it cost-neutral to install photovoltaics on the roofs of homeowners. There are 1.1 million households in San Diego County. We want to subsidize everyone $30/month for 5 years, say. After 5 years, the cost of electricity from SDG&E will have increased to the point where the solar panels are cost effective. So, let's see ... $30/month for 5 years, that's $1800 per household. Multiply that by 1.1 million households... gives you $2 billion. Stay with me here. So for $2 billion, EVERY household in San Diego gets PVs on their roof, and their monthly out-of-pocket does not change...... hmmm, but where would we get $2 billion? Wink, wink. Oh yeah, that $2 billion. Sunrise Powerlink. Yegh.
Scott, I am not disagreeing with your and Erik’s contention that lower interest rates are preferable, and that to save money on net beats being net out-of-pocket. The higher interest rates on this model to date mainly represent banks’ perception that new-and-untested = risk. I don’t believe that is the case either, but there it is. Any way we can get the “average” case to cash-flow-positive status is good; lower rates would make an important contribution. Another way is to use the mechanism to finance energy efficiency measures as well as solar. EE tends to have a higher ROI, and combining it with solar (“save first, generate what’s left”) makes sense. I understand that with some experience the City intends to move that direction. Like you, I am enthusiastic and willing to roll up my sleeves to help this work!
re: $135.68 Perhaps to be fair given the state of the economy, the $135.68 payment on the 20-year loan in the article referenced above has a tax-deductible interest component to it if financed into the home loan. In year one, the value of that interest is about $40 per month. $135.68 payment to bank - $40.00 monthly reduction in taxes (assuming 40% combined state/federal) equals $96 per month for a solar system and an electric bill that is very stable *versus* $82 per month with rates over which the customer has little control. Let's make sure w look at the whole picture. Thank you.
That's right - it's like your Health Insurance Reimbursement Account-- if you buy too much, you lose it. Use it or lose it. It's consumer-unfriendly. It discourages people from spending money on solar. If I am going to go through the trouble of buying the inverter, hiring the company to install, all the hassle of solar, I want to go all-out and future-proof by getting more panels that I actually need this moment -- but SDGE won't buy my excess power. That's wrong.
I don't mean to be overly harsh to the mayor, but I hope we haven't sunk so low in San Diego that we heap praise on politicians for merely getting out of the way because we are so used to them being active impediments. Saying "He's trying to take down giant hurdles in the way of people putting solar panels on their homes." is a giant stretch. All he is really doing is trying not to be an impediment to the implementation of a state program he had nothing to do with. In fact the program will greatly help San Diego by lessening electricity demand and requiring less generation and less transmission, so for the mayor to be willing to implement the state bill in a manner cost neutral to the city seems like the absolute minimum he could do.
Sempra/SDG&E wants ratepayers to pay $2 billion for the Sunrise Powerlink to bring (they claim) solar power from Imperial Valley. I'm curious how projects like that are financed and what the terms are. Obviously the collateral for that project is the fact ratepayers will be forced to pay for it every month on their bills. How different is that from homeowners paying for solar panels through their property tax? SCE was projecting $3.5 per watt for their project in LA, and prices are supposed to be coming down even further. At $3.5 per watt that same $2 billion would install 570 megawatts of solar panels in San Diego. Wouldn't it make more sense for everybody (except Sempra) to charge the same fee that would be charged for Sunrise, but instead pay it into a pool for solar panel rebates to homeowners?
Paul, you are absolutely correct. In fact, I have done similar math and reached the same conclusion -- that the money we are being forced to spend on Sunrise could TODAY, right now, be used to build megawatt upon megawatt of in-county solar power, with zero new transmission lines needed. But we all know that is not how Sempra makes money. I sent letters to PUC, the Governor, our City, state and federal representatives, etc -- all describing this simple math. Oh, and remember for our $2 billion, we just lines to nowhere -- we have to pay for the actual power plant on top of that. $2 billion is just for the poles and wires - which are not needed in the in-county solar alternative.
So far we are only even talking about the $2 billion the powerlink will cost. For that price we don't even get any power. Stirling claims they will ramp from no production to 5,000 to 10,000 units a year with amazing cost savings due to scale. Their best estimates put the cost at $400 million for 300 megawatts ($1.33 per KW), but realistic estimates put the cost as high as $1 billion. If it works, they could build another 600 megawatts. If you assume the best case cost estimate for Stirling (which nobody realistically expects), you minimally add another $1.2 billion to the $2 billion for Sunrise to deliver 900 megawatts long distance to San Diego. At $3.5 per watt for locally installed panels, that same $3.2 billion would buy a proven 914 megawatts, compared to a hypothetical 900MW from Stirling/Sunrise.
The internal rate of return of a solar electric system investment can be 10-20%. And since the costs are fixed, there is much less risks, aside from the slim (to none) chance that electric utility rates start to level off. So why do folks continue to focus on the payback of a photovoltaic system? Would you judge the attractiveness of any other investment in terms of 'payback'? What is the payback on your retirement plan? How about your house? The cost, or value of these systems is all in how we perceive them.
Since the passage of AB811, it would seem that SEMPRA might want to create a fund for this program themselves, one that could reduce their "Renewable Resources" deficit by its very existence. They provide retro-fitting of energy efficient lighting to residential and commercial customers and they provide rebates for everything else. Isn't it short-sighted of them to NOT create a Solar Energy Bond Pool, or something akin to it, rather than allowing others to get in the mix, thereby creating opportunity for errors and eocnomic loss for SDGE / Sempra ? Since they are in the electrical business, why don't they get involved. They will then STILL make the money, for the next 20 years, reduce their deficit, and then do it all over again when the panels/systems no longer work, Other large utilities are already providing solar power. before AB811, why not SDGE ?
The simple answer is that the Sunrise Powerlink is potentially so incredibly profitable to Sempra/SDG&E that they have done as little as possible to promote alternatives. That is why the area of California with the best sun exposure lags behind the rest of the state in installing solar panels. The Sunrise saga clearly demonstrates why utilities should not be allowed to plan infrastructure. As you would expect (and nobody can really blame them), projects proposed and pushed by Sempra/SDG&E are developed to maximize their profits, not to provide the best solution for ratepayers. The process that allowed Sunrise to be approved is badly broken. It was approved because it maximizes profits despite all the evidence that said it was a vastly inferior and costly solution to power needs in San Diego. $700+ million guaranteed profit pays for a whole lot of lobbying.
Really all I want is a simple answer - why can't the program be structured with MULTIPLE lenders? Let consumers shop for the best rate and then, once the financing is secure, essentially "register" the loan into the mello-roos-like structure. One can imagine that with just a bit of competition rates would be lower, there would be interesting co-marketing partnerships between installers and lenders, etc. etc. The problem with sole souring the lending is that all the innovation that competition breeds is lost. While the Mayor will surely fight for a lower interest rate, the consumer themselves is likely to try to drive the hardest bargain, especially if being courted by multiple lenders
Scott: First costs are an important factor in the decision whether or not to go solar, but its not everything. One key factor that doesn't come into play here in San Diego is whether or not solar system owners can sell any surplus energy their PVs can generate back to the local utility, SDG&E. Over the last two decades SDG&E has developed a rate structure that actively discourages customers from going solar. SDG&E has an internal policy of refusing to buy any electricity from customers with solar or wind systems. The CPUC has allowed SDG&E to maintain this anti-customer rate structure despite years of protests from major customers like the city of San Diego. If SDG&E made its rates more customer friendly, we'd see a lot more customer generation using renewables.
I'm quite interested in solar, but SO FAR it simply doesn't pencil out -- especially if you don't have a north-south facing roof. I think it is folly to subsidize solar. It WILL come to pass -- but it's going to make sense for one of two reasons: 1. Electricity costs soar. 2. Solar technology dramatically improves. Subsidizing solar today is encouraging investment in a technology that likely will be costly and outdated within five years. Nano-solar and other newer ways of harvesting the power of the sun hold out considerably more hope.
In the 1970's state government rushed out HUGE tax credits for the installation of solar water heaters. The state and federal credits combined reimbursed almost 90% of the cost of the units. In essence, we taxpayers paid for it. Check out University City where the developer put in solar in an entire development. Results? After 15 years, almost no units worked at all. They were costly, untested and no one thought about the maintenance costs. And that's not counting the damage from the unexpected interior floods from broken pipes in the attic. Solar electricity WILL make sense. But those who buy today are paying too much for technology that will be quaintly outdated within the decade.
In the 1970's state government rushed out HUGE tax credits for the installation of solar water heaters. The state and federal credits combined reimbursed almost 90% of the cost of the units. In essence, we taxpayers paid for it. Check out University City where the developer put in solar in an entire development. Results? After 15 years, almost no units worked at all. They were costly, untested and no one thought about the maintenance costs. And that's not counting the damage from the unexpected interior floods from broken pipes in the attic. Solar electricity WILL make sense. But those who buy today are paying too much for technology that will be quaintly outdated within the decade.
Users may post more than one comment, but should not pose as multiple users. Multiple posts from the same IP address but with a different user name on each will be reviewed to determine whether abuse has occurred.
Posts with overly personal attacks or unsubstantiated allegations may be edited or deleted.
Please be patient with the posts -- there may be a delay before they appear on the site -- and make sure to enter the code in the "image verification" box.
Post a comment
Scott Lewis on Politics
The Scott Lewis on Politics blog, abbreviated cleverly as SLOP, is a collection of observations, insights and the occasional scoop on public affairs in San Diego. Please feel free to e-mail Scott at scott.lewis@voiceofsandiego.org.
Listen to voiceofsandiego.org's radio program on AM 600 KOGO: Latest Episode (November 8): Scott Lewis and Michael Zucchet talk about the city's budget
PRINT 
E-MAIL STORY
SHARE
FACEBOOK
REDDIT
NEWSVINE
DIGG
DEL.ICIO.US
BLINKLIST
Don't want to miss a story? Want to be the first to know about breaking news? Sign up now.