News & Opinion » News

Berkeley's Solar Plan Goes Dark

The city has decided to abandon its once-touted home-solar financing program.

by

1 comment

The City of Berkeley's home-solar financing program was going to be revolutionary. The highly publicized plan was supposed to help thousands of city residents install solar panels on their roofs without any up-front money. But two years after the city proudly unveiled the program, those thousands of new solar systems have never materialized. In fact, despite accolades from the East Bay Express and the San Francisco Chronicle to The New York Times and the UK Guardian, the BerkeleyFIRST pilot program ended up serving just thirteen property owners. And the city has no plans to continue it.

Berkeley's solar initiative was the brainchild of Francisco DeVries, former chief of staff to Mayor Tom Bates. The idea was that property owners who wanted to go solar, but didn't have $20,000 to $40,000 in up-front capital, would get their photovoltaic systems paid off by the city soon after completion. The city then would raise the funds through bond sales, and property owners would repay the loan over twenty years as part of their property tax assessments. The savings on electricity bills should have been roughly equivalent to the increased property tax costs.

The pilot program was supposed to serve forty homeowners. And excited city residents quickly signed up online, on a first-come, first-served basis. But then 27 of the participants withdrew their names, many citing the high interest rate — 7.75 percent — that was tacked on to the twenty-year loan. "I applied for the program and when I got the program, I said, 'No thank you,'" said Elizabeth Scherer in an interview. "They just loan you money higher than you could get elsewhere." Scherer added that she's still planning to install a solar system, and will likely go to the bank that holds her mortgage where she can borrow the funds at a little over 5 percent. "Seven-point-seven-five is a little high for helping people to get solar," she said.

In fact, Berkeley officials even advised homeowners during the pilot that they might be better off going to a bank than using the city's program. "You might want to consider doing the home equity line of credit, which is approximately 3.5 percent right now with most banks," Alice La Pierre, the city's energy efficiency coordinator, wrote in an e-mail to one Berkeley resident. Many of the original forty applicants did just what La Pierre advised — they got loans from their banks.

Neal De Snoo, who heads the city's office of Energy and Sustainability, explained that the reason the city's interest rate was so high was that Berkeley issued the bonds in small increments. "We issued bonds essentially in increments of $20,000, which was very small, and the transaction costs associated with them are high," he said. "This is a very new type of financing, so most banks wouldn't look at it."

In hindsight, the program needed to have more participants, De Snoo said. "If it were done on a larger scale, the interest rate would go down; we would be able to serve a wait-list as people withdrew their applications," he said. When asked whether the city and its consultants knew that before going into the process, he responded: "We didn't know much at all. This had never been done before."

Mimi Frusha, chief operating officer for Renewable Funding LLC, an Oakland-based company that administered the program and purchased the bonds, said it could have attained a better interest rate if there had been "250 to 300 participating properties."

De Snoo noted that larger-scale programs are underway in Sonoma County and Boulder County, Colorado. "We did a limited pilot, they did a market-sized program," he explained. The Sonoma County project, for example, attracted 1,200 applicants and 900 of them have taken advantage of the program, according to program spokeswoman Amy Bolten. In addition to being much bigger than the Berkeley pilot, Sonoma County funded a range of energy efficiency projects, including double-pane windows and solar hot water. Although the interest rate wasn't that much better — 7 percent — participants could opt to pay off the loan in five, ten or twenty years, whereas in Berkeley, only the twenty-year option was available.

Berkeley has learned that it's too small to go ahead on its own, so there will be no local phase two of the program, De Snoo said, noting, however, that the state is putting together a larger program known as CaliforniaFIRST, using federal stimulus funds. It would target the installation of 5,000 solar units and energy efficiency projects. If Alameda County participates, Berkeley residents will be able to take advantage of it, he said.

Despite the small number of participants in Berkeley's pilot program, and the city's decision not to offer it to more Berkeley residents, De Snoo takes a glass half-full approach. The pilot program created a heightened interest in solar and got people to go out and get their own financing — even if BerkeleyFIRST was too expensive for some property owners, he said.

Mayor Bates also remains enthusiastic about it. "I am delighted with what happened with BerkeleyFIRST," he said, contending that the small number of participants in the program "doesn't matter." The idea of a pilot is to learn how to make the program better, he said, noting that among the lessons learned was that applicants should be better informed about the details before they sign up and that the program should allow participants to install a broader range of energy retrofits. He also pointed out that BerkeleyFIRST publicity caused other cities and counties to take an interest in putting together similar programs.

But solar energy proponent Councilman Kriss Worthington said the pilot program had problems, particularly the online application process. You couldn't participate if you didn't have a computer, or couldn't get to a computer by 9 a.m. on the day it was introduced, he explained. Worthington further noted that the program was geared to higher-income people — about 80 percent of households that participated in the program earned an annual income of more than $100,000, according to a city report evaluating the program. Worthington also said he's concerned that the cost of the program outweighed the benefits.

Indeed, Berkeley spent considerable amounts of public funds on the solar program. The effort received $235,000 in grants from the Bay Area Air Quality Management District and the US Environmental Protection Agency. The city's general fund also contributed $70,000. In other words, Berkeley spent more than $23,000 per property owner — nearly the same as what it would have cost the city if it had handed the thirteen participants cash to install their own solar systems.

DeVries, meanwhile, also put in countless hours as Bates' staffer toward the effort, before becoming president of Renewable Funding LLC. When asked if it weren't a question of "a revolving door" for the city to have contracted with DeVries' company to put the program together, De Snoo said that was a consideration. But "frankly there were no other financial institutions that were willing to take this on. ... They were the only game in town," he said.

Although DeVries' company has a hand in designing the statewide project and is working with Boulder County, De Snoo said he thinks Renewable Funding isn't turning a profit. "If it turns out that they can make money off of this [kind of] project, there will be other companies in the market. Until that time comes, they may be the only game around. If they can show that they can make money with this, then we'll see the Wells Fargos, Banks of America — maybe some of the local banks get involved in this program, but right now, they're not in it."

Renewable Funding COO Frusha sidestepped the question of overall profitability, but wrote in an e-mail: "Berkeley was R&D [research and development] for Renewable Funding, where our first goal was to learn. We wanted to help the city develop and implement a very innovative program, and we were pleased to be a partner on the Berkeley pilot."

But at least one of the thirteen participants in the program is now apprehensive about it. Nigel Guest said BerkeleyFIRST came with some unknowns. On the plus side, Guest said he likes his solar system and is hoping that he'll be able to write off the increased property taxes on his income taxes. But he also doesn't like the fact that if he pays the system off early, he will still have to pay the full twenty years of interest. And he said he didn't learn until late in the process that the bank would put a lien on his home that will remain until the loan is paid off. He said he fears future lenders may look unfavorably at the lien. "I feel I'm still at risk," he said. "I just don't know."

Comments

Showing 1-1 of 1

 

Add a comment