Opinion

Solar Usury

OK, looks like we’re getting somewhere in understanding this new solar initiative that the mayor is touting.

I’m still enthusiastic, but it doesn’t appear to provide a completely cost-neutral way to outfit your home with some snazzy new solar panels. And there appears to be a dollop of stinky limburger cheese on this delicious apple pie.

Let’s break this down.

If you haven’t read Dave Washburn’s story today about local leaders’ hopes to cultivate a green economic revolution in San Diego, you’ll want to check it out. Washburn broke the solar panel deal down better than I had yet seen it — explaining the economics of it for a typical San Diego homeowner.

Here’s the gist:

The program, made possible by California Assembly Bill 811, allows city homeowners to finance the entire cost of installing solar panels on their homes, and allows for the up to 20-year loan to transfer along with the property when the home is sold. It makes the financing palatable to banks by allowing them to put primary liens on the homes when they loan the money for the solar panels. It will begin in the city on a test basis in September.

Such a program eliminates the two biggest hurdles facing homeowners who want their electricity provided by the sun. The first is the sizable down payment needed to purchase the systems — which can cost between $25,000 and $60,000. The second is the prospect of selling your home, but still owing on the solar panel system.

So, with available state and federal rebates totaling about $12,500, a city homeowner could purchase a $30,000 system and end up with a $17,500 loan, Laing said. Assuming a 7 percent interest rate, the monthly payment would be $135.68.

And with a solar panel system, the typical homeowner would cut his or her monthly electricity bill of $82 to about $10, Laing said. So, the homeowner would end up with a solar panel system for about $62 a month more than today’s electricity bill.

So best case scenario is that you get to lessen your carbon footprint considerably for the price of $60-$70 a month. This makes it much much easier to get into solar. But you still have to have a slightly bigger heart than wallet and so it may not necessarily be the frenzy provoker I thought it could be.

But wait? Do you see something wrong with this picture? Look at those terms, there’s a big question in there we need to find out the answer to.

What’s with the interest rate on that loan? Seven percent?

The question comes from Erik Bruvold, the president of the newly renamed National University System San Diego Institute for Public Policy Research, or NUSSDIPPR. (I’m going to go with News Dipper for short.) The Institute, of course, was the brainchild of former mayoral candidate Steve Francis and has now merged with National University.

Anyway, Bruvold brought up a good point. Are homeowners getting the best possible financing terms on these deals? These are about the safest loans a bank could give: The loans are tied to the property, so even if borrowers default and foreclose on their homes, the loans will still be paid off by whomever takes over the property. The banks have very little risk it seems. So, accordingly, the rates they charge should be low.

Yet, the mayor’s spokeswoman, Rachel Laing, says homeowners have to assume a 7 percent interest rate for this loan. What? Why?

She said they based that rate off what the two other municipalities — Berkeley and the Palm Desert — have gotten on the deal.

This is weird. A home equity loan — a much, much more risky loan for a lender — is going for less than 7 percent right now. Again, this is practically a guaranteed payback during a time of ridiculously low interest rates. And we have to pay 7 percent?

Here are Bruvold’s thoughts:

Couldn’t agree more that AB 811 programs seem really interesting and smart. What I have not gotten an answer out folks (asked California Center for Sustainable Energy) is why the programs seem to “sole source” the financing. Given that the loan is attached as essentially a Mello-Roos to the property, it is about as safe as money as there is — like property taxes even in the case of a default on the mortgage, the taxes would just accumulate as a lien on the property, eventually requiring them to be paid off.

So the rates should be extremely low and attractive. But, as the programs are now structured, there is little to no incentive for the municipality to go out and negotiate the best possible deal for would-be borrowers. Berkeley’s rate, for example, is about 50 to 75 basis points above what I was able to find for a comparable home equity loan.

Memo to mayor then: Get us a better deal than 7 percent. Show them your bad cop routine.

SCOTT LEWIS

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