Breaking into Rooftop PV Without Breaking the Bank

For those of us contemplating rooftop solar, and trying to bridge the gap between what we think it’s going to cost and what we want it to cost, there are a few more options out there these days.

The National Renewable Energy Laboratory (NREL), part of the U.S. Department of Energy, has summarized some of the financing options for residential PV in a recent report, Solar Photovoltaic Financing: Residential Sector Deployment.

In summary, besides the federal, state, local and utility incentives available to promote renewable energy and energy efficiency (and that can be accessed on the DSIRE database), the report describes different and original kinds of financing increasingly in use across the country for PV.  The programs vary from ownership by third parties to financing through property taxes to community-based projects;  their common feature is that they all succeed in reducing or eliminating that high upfront cost burden that plagues residential solar deployment today.

Third-party Ownership

One such model is known as Third-party Ownership, in which an entity other than the homeowner builds, owns, operates and maintains the solar installation on the homeowner’s property.  One advantage of this model is that financial incentives for commercial entities are more generous than for  consumers; (besides the 30% investment tax credit, commercial owners can depreciate the system cost over five years).  Thus the net cost of the installed system is less than if the homeowner had assumed the burden of ownership.  The biggest advantage, however, is that the large upfront cost and periodic maintenance costs are borne by the system owner, not the homeowner.

So how does it benefit you to be hosting someone else’s solar array on your roof shingles?  Through one of two ways:  a solar lease or a residential Power Purchase Agreement (PPA).  Under a solar lease, you sign a contract with the owner and make monthly lease payments over an agreed period of time.  You get to use the electricity generated by the system, and (assuming the local utility allows net metering) are credited for any excess power you send back to the grid.  Depending on the contract, you may be able to purchase the system at the end of the lease period, or extend or terminate the lease.  With a PPA, you buy electricity from the owner/PPA provider instead of buying or leasing the equipment itself.  As with leasing, the owner finances, builds and maintains the system on your property and enjoys any tax credits, rebates, incentives and depreciation available;  as host, you agree to buy the power output at a fixed price over an extended period.

Property Tax Assessment

The Property Tax Assessment model, pioneered by the city of Berkeley, CA and now garnering interest around the country, featured in the January 2009 issue of Solar Citizen (“Solarize Now, Pay Later”). 

In this model a city lends homeowners the funds to install PV systems, which the homeowners repay through a special property tax assessment over a long period (e.g., 20 years).  This overcomes two potential problems for the homeowner:  finding the upfront money and recouping the investment in the event of moving house.  Since the tax assessment remains with the property and not the owner, the repayment obligation is passed on to each new owner. 

Monetizing Solar Renewable Energy Certificates

Renewable Energy Certificates (RECs) are legal representations of the environmental attributes of clean energy generation, and can have an actual cash value in certain markets.  The owner of a solar installation typically earns a REC for each megawatt-hour of energy produced, which can be sold to provide a revenue stream.

PSE&G, a New Jersey utility, has implemented a solar loan program aimed at deploying 30 megawatts of PV within two years.  30% of that figure is allocated to residential systems.  Loans are expected to cover between 40% and 60% of the cost of systems, loan size to be based on the expected total generation of solar RECs;  in this way the revenue from REC sales should closely match the loan payment amounts.  Homeowners are expected to repay the loan by passing their earned RECs on to PSE&G, supplemented by annual cash payments if the value of the RECs does not meet the repayment amount.

Community-based Solar Programs

So far, we have dealt only with ideas that affect single homeowners.  But in some parts of the country, community-based programs are being used to increase the amount of deployed Solar.  Three years ago in Ellensburg, Washington, the municipal utility launched a ‘virtual net metering’ program, which solicited contributions from residents to finance a 36-kilowatt PV system.  In exchange for an upfront contribution, customers would receive a proportionate credit on their electric bills for 20 years.  The initial result was a total of $120,000 contributed to the installation, and the city plans to continue accepting contributions for three more years to expand installation size to 165 kilowatts.

Further south, the Sacramento Municipal Utility District (SMUD) last year created a 1-megawatt solar PV farm by entering into a PPA with a private solar developer.  The developer built, owns, operates and maintains the solar farm and will deliver all its output to the grid.  Under SMUD’s SolarShares program, SMUD customers can subscribe to shares in the system to offset, on average, between 20% and 40% of their consumption, paying a fixed monthly rate in exchange for the electricity their percentage of the system generates.  And in St. George, Utah, the Energy Services Department partnered with the regional cooperative electric company to build a 100-kilowatt community PV system similar in nature to SMUD’s.

These kinds of program, by supporting large centrally-located installations, can help capture the benefits of economies of scale.  They can also allow non-traditional consumers, such as renters in apartment buildings, to participate.  It’s worth noting, however, that the common denominator in these examples is that the utilities generating such innovative programs are ‘munis’ and ‘co-ops’.  We’d be more encouraged to see a similar level of proactiveness from investor-owned utilities.

Neighborhood Projects

Innovative funding can also come from entities quite unconnected with the energy industry—even groups of enterprising neighbors.    In November 2007 we reported on the Portola Valley Ranch Homeowners Association, which struck a deal with a local solar company to solarize thirty of the two hundred homes in the association.  The net effect was a 30% discount for all the participants.   In San Jose, also in California, a group of neighbors issued an RFP for solar arrays with an average size of 4 kilowatts.  Of the 34 homeowners in the group, 26 financed their systems through the residential PPA model described above;  the group as a whole saved $60,000 through discounts offered by the developer. 

Finally, in Mosier Creek, Oregon, a residential developer designed a community of town houses to include rooftop PV and solar hot water from the outset;  instead of adding the cost of the systems to the home prices, the developer created a separate LLC to buy, build, and operate them for five years.  The LLC sells electricity to the homeowners at less-than-retail rates under a PPA contract, and provides the solar hot water at no charge.  With the help of federal and state incentives, Mosier Creek was able to reduce installed costs by 70%.  After five years, residents can buy their systems at a fair market price;  failing that, the developer can sell the output to the utility.  The project was completed in June 2007, and although initial sales were brisk, the subsequent housing slump slowed sales down considerably.

But How Real is it?

So there is no lack of creative ideas out there for overcoming the cost-of-entry to residential solar.  But for the bad news (you knew there would be bad news!), you should know that these ideas are currently limited to a few locations across the country.  Solar lease programs are in operation in California, Oregon and Arizona through SolarCity (www.solarcity.com), and in Connecticut through the Connecticut Clean Energy Fund (www.ctcleanenergy.com).  A third program is being launched in the twin cities of Minnesota.  Residential PPA programs are even less well developed, despite the prevalence of PPAs at the utility level.  Pioneering programs are being run today only in California by SunRun, Inc. (www.sunrunhome.com).

As for property tax assessment models, they also originated in California, as described above.  But the Berkeley FIRST idea is today being copied in Palm Desert, CA and Boulder, CO.  The difficulty in implementing this kind of program widely is that state laws must allow for special tax financing districts to be established, and cities must have the authority to issue bonds for such a scheme;  in many cases around the country, they do not.  And the tactic of monetizing solar RECs, as we showed, started with a utility in New Jersey and has not, at this writing, spread beyond that state.

Examples of community and neighborhood solar can be found only in a handful of states—Washington, California, Utah and Oregon were cited—but of all the residential PV financing models being tried, it may be these that ordinary citizens have the most chance of creating, through their own efforts, and bringing to fruition.  That’s not to say that they will be easy to implement;  most will involve a group of solar citizens doggedly rounding up interest on the part of other citizens, town officials and sources of finance.  But it may be an easier option than waiting for your state government, your city hall or your town council to announce that creatively financed solar power is coming to a rooftop near you.

Of course, now might be the time to start asking pointed questions of those governmental bodies.  As the NREL report concludes: