Berkeley, Calif., this week approved a loan program to pay the upfront costs of installing solar power in businesses and residences in the city.
In exchange, property owners -- who also would own the solar-power systems -- would pay back the loan over 20 years as part of their property taxes, but in the meantime should be paying lower electric bills.
Although the Berkeley City Council approved the program Tuesday evening, city staff is still figuring out how the program will work, and the City Council will have to approve the financial and legal details before it takes effect.
"Berkeley actually is taking action and doing something that everybody thinks about," said John Woolard, CEO of BrightSource Energy, a company developing technology that uses the sun's heat instead of its light to produce electricity in utility-scale projects. The company has no apparent stake in Berkeley's plan.
"There is a different model than just the utilities buying power, and it's going to be fascinating to watch. Berkeley has been bold in taking the first step."
The city claims it's the first in the nation to approve such a program.
While that may be true, the idea behind the program isn't a Berkeley original.
Companies such as SunEdison, MMA Renewable Ventures and Recurrent Energy have been paying installation costs in exchange for agreements that commercial customers will buy the power. And companies such as Sun Run Generation do the same for residential customers.
Such companies coordinate financings with major corporations that can take advantage of the tax benefits of owning solar installations.
But government agencies have the advantage of being able to tap into tax-exempt, low-interest financing such as bonds, potentially cutting costs in half compared to commercially financed installations, said Paul Fenn, CEO of Local Power, which helps government agencies set up renewable-energy programs.
"It's such a huge advantage," he said. "The cost of capital is dramatically lower. If you capture the 20-year payback of a bond, it has a dramatic effect on the cost of a facility."
Some companies think Berkeley's program might not be such a good idea.
"I'm unsure if the program in Berkeley is a good deal at all, considering that solar systems are not subject to property tax in California and that accepting this proposal seems to void that benefit to homeowners," said MMA Renewable Ventures CEO Matt Cheney, who added it's unclear if the property tax will drop after the solar-power system is paid off.
"While we applaud the efforts to support solar, I think a better approach might be for the city of Berkeley to support clean-energy options for its residents that are readily available today from its local financial institutions through providing property tax relief or loan guarantees."
In any case, Fenn said other cities are already trying ideas similar to Berkeley's.
San Francisco and several cities in Massachusetts and Ohio already are working on programs to pay upfront solar-power costs for their residents using bond money, which residents pay back as part of their electric bills, Fenn said.
San Francisco has raised bond money for such a system, and in June, the city said it planned to roll out 360 megawatts worth of solar-power, wind-power and energy-management projects as part of the program.
Fenn said municipal financings of renewable-energy technologies have been growing over the past seven years as cities try different ways to encourage cleaner energy.
He gave an example: Berkeley already has set a goal of getting 51 percent of its energy from renewable sources by 2017. As part of the plan to reach that goal, the city plans to partner with nearby cities Oakland and Emeryville to buy renewable energy using money raised in bonds.
All these community-choice aggregations also will offer residents the opportunity own solar-power projects essentially on layaway, with no money down, and then pay back the installation costs as part of their electricity bills, Fenn said.
And renewable-energy installations also are exempt from federal taxes, so residents that agree to pay the extra charge -- both on electricity bills, in the case of aggregations, and on property taxes, in the case Berkeley's new program -- would be able to then exempt those charges from federal taxes, he said.
Fenn and Woolard both said they expect to see more programs like Berkeley's catch on.
But if they do, it also could mean the role of companies that finance projects in exchange for power-purchase agreements will shift, Fenn said.
"It influences them in terms of how they should plan for future markets," he said. "Public financing could be viewed as competition because the government is coming in, but I believe that would be a strategic mistake.
"Those companies that adapt to the market and shift to [add value by] participating in those programs will win; those that try to compete against them will lose."
Learn more about the future of the solar market at Greentech Media and the Prometheus Institute's inaugural live event, Solar Market Outlook: A Day of Data.