Late last year, local solar advocates were pleasantly surprised when San Diego mayor Jerry Sanders moved quickly to implement a new state law that allows cities to finance solar systems for homes and businesses. But now some advocates are saying that Sanders’s decision to involve San Diego Gas and Electric in an early step of the program could be a sign for concern.
Under the law, cities can create programs to pay the up-front costs of photovoltaic systems through a loan to the homeowner. The loan is repaid over 20 years, included as a charge on the property tax bill. The big advantage of the program is that homeowners avoid the need to pony up the cost of the system and installation, which can easily run upwards of $20,000. Cities can finance the program themselves or, as San Diego hopes to do, they can contract with a third party to provide the financing. The loans are considered a low-risk investment because they are secured by the property and repayment is included in annual property tax payments.
Similar programs on a limited scale have had strong response in Berkeley and Palm Desert.
In San Diego, the California Center for Sustainable Energy, a local nonprofit, administers the state’s landmark solar-incentive program, which provides rebates to those purchasing rooftop photovoltaics. The center has high hopes that the new financing program will boost solar installations in San Diego.
“When we talk to solar contractors, the number-one reason they don’t close sales is lack of financing, so a seamless way to get financing is going to help,” said Andrew McAllister, director of programs for the center. “Right now we get 120 applications per month for residential installations. I think that could double with a municipal finance program.”
The rooftop potential here is vast. During sunny parts of the day, nearly 4000 megawatts could be produced by photovoltaic systems sited on the area’s rooftops, according to a 2005 study coauthored by SDG&E. That would be enough to power this entire region on all but the hottest days.
The California Center is at the focus of efforts to tap that potential, but the center withdrew from the planning process for the new financing program because of a possible conflict. “I took myself out of the process because CCSE wants to be the administrator of the finance program,” McAllister said.
Although the center stepped out, the City invited SDG&E to participate.
In January, the City and the utility sent a “request for qualifications and information” to 3000 companies. The letter said the City “in conjunction with San Diego Gas & Electric” was requesting information to determine who might be qualified to successfully execute the pilot solar-finance program. Review of the responses to the request for qualifications, the communication added, will be used to determine who will be “invited” to submit formal proposals for the program, in what would presumably be a competitive bidding process. The correspondence was cosigned by the City and SDG&E.
Experts said it was not unusual for a government entity to review qualifications prior to soliciting formal bids. The qualification review allows the City in this case to determine the level of interest and capability of candidates prior to launching what can be the time-consuming and expensive process of reviewing formal bids to run the program.
Nonetheless, Solana Beach is taking a different route. That beach city went directly to a request for proposals and hasn’t involved San Diego Gas and Electric in its search for a solar-finance partner. The city got about a dozen responses to its request, according to deputy city manager Wendé Protzman. City staff have begun to evaluate them.
Responding to queries from Councilwoman Donna Frye, Erik Caldwell, a policy advisor to Mayor Sanders, said San Diego chose to involve SDG&E because of its contacts.
“In order for the [request] to be successful,” Caldwell wrote to Frye’s staff, “we needed to get the document in the hands of as many firms as possible. SDG&E assisted by broadening the potential field of potential bidders.”
Caldwell, who did not respond to calls from this reporter, told Frye’s staff that because the utility is involved in the development of the proposal, it will be precluded from bidding on any portion of the project or participating in the program once awarded by the city council.
He added that SDG&E will also “not be involved with the selection of qualified firms, the writing of the [request for proposals], or any other part of the solicitation process.”
The mayor’s policy adviser said that the utility has also served on the City’s stakeholder group for the new law’s implementation.
By some criteria, San Diego Gas and Electric is a curious partner. The local utility has been the slowest in the state to adopt renewable energy in any form, and its rate structure has been repeatedly criticized as being the least welcoming in California to the adoption of photovoltaic solar systems.
Dirk Hosmer, a sales manager for Akeena Solar, a large solar installer, said SDG&E’s commercial electric rates make it difficult for companies to justify the cost of converting to solar, in contrast with rates at major state utility companies.
“San Diego has the most sun, but we are the last in the state in terms of commercial jobs, and that is 100 percent to blame on SDG&E,” said Hosmer.
Michael Shames, executive director of the Utility Consumers’ Action Network, said his group strongly supports a plan for financing solar. But Shames said there was little evidence to suggest the utility would be helpful in the planning process.
“They have no background in solar, and SDG&E is in the dark ages when it comes to the bidding process for photovoltaics,” said Shames. He referred to an SDG&E plan to build about 50 megawatts of tracking photovoltaic installations — which trace the movement of the sun to boost electric output — as “the most archaic” solar technology. Shames and others believe the cost of tracking devices isn’t justified by their additional output of electricity.
Caldwell, responding to Frye’s staff, said the City “asked everyone who expressed an interest” to send out the City’s request for qualifications.
Calls to the City regarding the outcome of its request for qualifications, scheduled to close on February 27, were not returned. San Diego’s timetable requires the City to select by late March the companies that will be invited to submit detailed proposals for a solar-finance program.
The limited experience in Berkeley and Palm Desert in city-financed solar programs suggests they can be very popular.
Nils Moe, an assistant to Berkeley mayor Tom Bates, said his city’s pilot program filled its planned 40 slots on the first day of its offering. He noted that an attractive feature of the program is that homeowners who move, say, in seven years, pay for the photovoltaic system only during the years they occupy the home.
The Berkeley program requires only a $25 application fee, and the loan carries an 8 percent interest rate, which includes a 1 percent payment to the city for administration. The city is contracting with a third party start-up to provide the loans to homeowners.
Palm Desert’s financing program has attracted over 200 homes and businesses, according to Patrick Conlon, director of energy management.
Conlon said that his city, which he said played a key role in crafting AB 811, has financed the first two phases of the loan program itself but was seeking a third party for expanding the plan.
More than 30 cities, including San Diego, have contacted Palm Desert regarding its experience, Conlon said. The prime reason for seeking a third party to finance the program is that current regulations bar cities from selling tax-exempt bonds to finance private solar installations. Several members of California’s congressional delegation are supporting efforts to change that regulation.
“Tax-exempt municipal bonds are much more common and easier to sell [than taxable bonds],” said Conlon. “This is a key goal that will be able to take this program nationwide.”
But details are important to the success of these financing programs.
One Berkeley resident said he was enthusiastic about the program until he scrutinized its details.
“We went to a workshop and were told nothing would come out-of-pocket,” said Michael Grunwald, a longtime Berkeley resident.
But he noted that contractors who bid on a system for his home said some payment would be required when the solar panels were delivered. The city, however, wouldn’t provide reimbursement until the project was completed. Given possible rain delays in the Bay Area, Grunwald said it could potentially take months between panel delivery and a finished project.
Faced with the prospect of making payments and waiting for reimbursement, Grunwald said he reconsidered.
He added that he might also be able to finance the project himself at a lower rate of interest.
Nils Moe, the Berkeley mayor’s assistant, agreed that some homeowners could probably get a better rate on their own, but many others can’t, particularly in the current downturn.
“This is a good option for a number of people,” he said.
Apparently so. Berkeley launched its pilot program at 9:00 a.m. last November 5; by 9:10 a.m., all slots were filled.