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Following up on this discussion about the mayor’s solar panel initiative, I wanted to make a point clear.
Look, what the mayor is trying to do — by implementing the Assembly Bill 811 — is great. He’s trying to take down giant hurdles in the way of people putting solar panels on their homes. With this bill, and it’s successful implementation, no longer will someone have to come up with tens of thousands of dollars up front (or in personal debt) to install solar panels.
This, again, is a big step. But it doesn’t get us to the top.
The fact is if solar panels could actually be cost neutral or even save people money, it could really spark the economy in a way that other historic phenomena have ignited it in the past.
But if it just makes a luxury — protecting the environment — a bit cheaper, it might create a cottage industry and lessen partly the demand on our electric grid, but it certainly won’t be a paradigm shift.
And that’s why this discussion about the interest rate banks will be charging citizens for these loans is so important.
If cost is everything standing between, on the one hand, helping a few wealthier enviros equip their homes with solar panels and, on the other, provoking a historical economic boom around clean technology, then I think we should be obsessively pursue and eliminate every cost imaginable. Someday we could chisel it down into the affordable zone — the point where everything changes.
As we were discussing this, Thursday and Friday, I heard from Andrew McAllister, the director of programs at the California Center for Sustainable Energy.
He wanted to put perspective on my contention that there seems to be very little reason why San Diegans should have to pay a 7 percent interest rate on a loan to install solar panels when that loan is tied to the property and virtually as safe from default as any offering in existence.
After all, home equity loans are going for much less, yet lenders are taking much more of a risk to make them.
McAllister had this to say in an e-mail (and he provided this link to some more background):
There is more to discuss on how this financing instrument might evolve over time as cities/counties gain more experience and increase their comfort level with the approach, for example with respect to the applicable rates; utilizing the market to access different sources of capital, and the potential for going to tax-exempt rather than taxable bonds, among other issues. Setting a “program rate” requires essentially locking in a rate well before the actual loan happens, so if the rate is to be advertised it must be somewhat higher than a [home equity loan] today for example, since the finance source is taking on some forward risk.
In other words, one of the reasons this ultra-safe loan for the banks might actually cost more than a home equity loan is that we have to lock in rates many months in advance.
Not very convincing. Maybe I’m being naive but this still doesn’t change the dynamics of the risk in my mind. If I had a tremendous amount of capital and I knew I could invest it in a loan program that gave me a virtually guaranteed return of say, 6 percent minus fees, I’d be all over that. Why are Berkeley residents paying 7.75 percent then?
Again, if someone else can point to where there’s more risk in this than I’m seeing, please, by all means, do so. But as it stands now, if a homeowner takes the loan, even if the homeowner goes broke and walks away from the house, the lien remains on the property and the balance will have to be paid by whoever takes over the property tax payments. The payback seems like a lock — even if the solar panels fall through the attic.
McAllister had more points of cautious optimism.
Also, any currently perceived legal hurdles will surely be resolved in the coming months, which will bring more clarity to the actual constraints around the property-tax model, also decreasing uncertainty. Obviously, any actual program would have to provide financing transparently.
In other words, I think he means that there’s some question as to whether it’s legal to put this on the property tax bill. Interesting. Can anyone elaborate on that?
Finally he had this point:
… it may well be that a person who knows they are going to be in their home for 10+ years and can qualify for an [home equity loan, or HEL] or refinance at a good rate would choose to do that over the municipal tax option — and this is fine. Many or most people, particularly these days, are not in such a position. First, many are not sure of their permanence in their current home; this is the number one impediment to closing sales that solar installers indicate. Second, the majority of those applying for refis and HELs are being rejected; rates may be low, but banks are not actually lending that much. In my view the focus on rates is important but not critical.
So, in other words, he’s saying that since people think they might not be in their home for long, this program allows them to still take out a loan to put in solar, without worrying that they are going to be burdened with it like some kind of student loan or other debt that follows you around through your life from house to house like a huge stinky rat.
And, McAllister is saying, we shouldn’t worry about rates because this freedom, the incentive it provides to get solar and get solar now, and the consequential effect that will have on our environment and energy economy make it all worth it.
This is a bit of a mistake, I think. Again, I can identify no single risk factor or hurdle in the way of making these loans more affordable. And yet, the cost of incurring them will undoubtedly be the highest hurdle in getting people to consider them.
The Mayor’s Office says its goal is not to make the decision to go solar a cost-neutral one for homeowners, but merely to take down some of the obstacles in the way of it. McAllister says the focus on rates is important but not critical.
It is a mistake to have these two low expectations, I think.
Look, I know there’s not a huge difference between 6 percent and 7 percent for the interest rates. Remember the story the other day: At a 7 percent interest rate, a person borrowing from this program to install $30,000 solar panels would pay $135.68. Then, this person’s electric bill would drop about $72 a month, meaning they’re going to have to come up with $63 more a month to have the solar panels and the warm green feeling running through their body.
With a 6 percent interest rate instead, the resident would have to pay $104.92 a month for solar. Subtract the savings from the power bill and the total hit they’ll have to take on in addition to what they already pay is $32.24.
Obviously, if we make it $30 more expensive it’s not going to change the world. And if the mayor can’t negotiate to get us that $30 a month, it probably wouldn’t change the dynamics of this thing too much.
But it’s the one cost factor the city officials can control now. And if they do control it and they can work to lower the costs elsewhere, maybe we’ll actually reach the point where people actually save money by installing solar.
I’m telling you, if I’m a solar panel salesman, the difference between telling someone they only have to spend $30 more a month to have these beautiful panels and telling them that they actually can save money is like the difference between eating a gas station hoagie sandwich and eating lobster sherry bisque at a fine restaurant.
Unfortunately, the only way we’re going to get to a truly solar and renewable energy frenzy is to do all we can to make it as cost neutral or even as profitable as possible. And if one step in getting there is negotiating better loan terms, let’s go obsessively toward that goal, not just pay it lip service.
Finally, as you may have noticed, there was a good exchange below. At one point, Rachel Laing, from the Mayor’s Office, had this to say:
We intend to get as competitive a financing rate as possible for participants. The city gains nothing from having higher financing rates; this is a cost-neutral program for the city.
This might not be entirely correct.
Erik Bruvold, from the National University System San Diego Institute for Public Policy Research, or News Dipper, responded with an interesting observation:
… not to get too picky but Ms. Laing misses an important point (“The city gains nothing from having higher financing rates”) — the city WOULD get something from that: a better deal from the lender in respect to the fee paid to the city for “administering” the program. In the case of Berkeley (“Initial and on-going City and County Administrative fees are built into the rate and add approximately 1% to the rate.”) So on a $25,000 system in Berkeley, that is about $200 a year to the city and Alameda County for “administrative costs.” Good work if you can get it.
Not to get too picky…
Let’s conclude with one point.
I keep talking about this because I’m way into it. I’m not trying to derail it. It’s very intriguing and, in a way, ingenious. Helping homeowners finance the installation of solar and then attaching it to their property taxes and not their own credit is just a great idea. Hats off to the Bay Area people who came up with it.
However, I cynically believe that the only way we can truly foster more environmentally friendly ways of powering our homes is to make it not only a morally good thing to do but an economically advantageous thing to do. I know I’m not alone and that’s not an altogether unique insight.
This program, to me, seems like a step that puts us almost there — a leap forward to where powering our own homes might be good not only for the environment but also good for our wallets. It’s the kind of advancement that if economically advantageous could provoke a true economic mania. It has the chance of actually doing the two things the mayor wants to see happen: create jobs and clean up the environment.
So that’s why I’m stuck on this: If the boosters of this program aren’t wholly focused, if not obsessed, with making this project more economical, I think they’re at risk of failing to reach their beautiful goal of giving this economy a major reason to get out of bed.
And I really don’t want them to.