Announcing Today: Solar Energy is FREE!

The second in our “SolarInnovation Series” is a creative financial innovation that couldsweep the nation and literally make SOLAR ENERGY for all practical purposesFREE to the average homeowner.  It does NOT need a string of technicalbreakthroughs or new scientific discoveries all it needed is a littlebit of financial innovation – simple as that.

If making money byinvesting in energy efficiency improvements and solar systems for ourhomes is so obviously needed and is also a good investment. Why do sofew of us move forward and do it?

Well, that answer isvery simple. It cost too much since ALL the payment is UP FRONT. Thinkabout it, if we all had to buy our homes and cars with CASH up fronthow many of us would do it? Buying power from your local electric utilityis a simple, pay-as-you-go service. Solar, on the other hand, requirestens of thousands of dollars up front and a long-term commitment tosee a return on investment.

How about making SOLAR,pay-as-you-go-too?  What if you could get some benefits right awayand also not have to pay for 20+ years of power up front? Well, theCity of Berkeley, California is now pioneering what many experts believemay be just such a solution: Berkeley FIRST. Berkeley launchedthe program in November 2008. The initial pool of funding was made availableto property owners and sold out in less than ten minutes.

What exactly isBerkeley FIRST?

Berkeley FIRST (FinancingInitiative for Energy Efficiency Renewable and Solar Technology) allowsproperty owners to install solar systems and make energy efficiencyupgrades with no upfront cost.

Berkeley pays the upfrontcosts through the issuance of a municipal bond. The bonds are repaidfrom participating property owners’ property tax bills over 20 years.Participating property owners pay for only the costs of their energyproject and property tax expenses remain unchanged for those residentswho choose not to participate. 
 
The result is that solar and energy efficiency projects are paid forover a long period of time (like your home or your car), in bi-annualinstallments. The interest rate is fixed. Property owners do not needto access their own capital or credit. And if the owner sells the property,the repayment obligation transfers along with the property itself. 
 
How did this come about?

Berkeley FIRST is simplya new twist on a common method of financing improvements in communities(Mello-Roos Community Facilities Act of 1982). California, like moststates, has long provided cities and counties with the power to payfor certain projects such as sewers, parks, and the undergrounding ofutilities by passing the cost directly on to the property owners thatdirectly benefit from the project.

HistoricalBackground

In 1978 Californians enacted Proposition13, which limited the ability of local public

agencies to increase property taxesbased on a property’s assessed value. In 1982, the

Mello-Roos Community Facilities Actwas created to provide an alternate method of financing needed improvementsand services. Todo this, the city creates a "land-secured" financing districtthat includes the properties that would receive a benefit from the project.It then sells bonds to cover project costs and the property owners whoreceive a benefit who pay back the costs through an addition to theirproperty tax bill. 

ProgramDetails – Straight Forward and Simple 
 
1. The Berkeley FIRST program is entirely voluntary. You only pay additional

property taxes forthe cost of your individual project, no other taxpayers taxes are affected. 

2. The City has a privatefinancial partner to handle the financing and bond purchase

for the numerous smallprojects instead of the usual one large expensive project. 
 
3. Residents apply to the program online through a dedicated BerkeleyFIRST

website. Assuming theyare not late on taxes or in foreclosure, each applicant receives a reservationfor funding. They have nine months to install their solar system andreturn to the website to request payment. 
 
4. After signing forms and providing documentation, a check is issuedto the property

owner. A tax lien isplaced on the property and a small bond is sold to provide the fundingnecessary to pay for the project. 

Typical InstallationNumbers

To illustrate thisinnovation clearly I decided to put some numbers to an actual exampleso that you can see the actual cash flows and how it is, in reality,FREE. 
 

Illustration InstallationAssumptions:

  1. 3 kilowatt residential system (3 KW)

  2. Cost:  $19,500 , after all California grants plus an city administration fee

  3. Annual Financing Payment: $2,000 for 20 years added to property taxes

  4. Annual Savings: $640 first year, escalated at 5% per year

  5. Other benefits and costs: federal 30% tax credit in first year and equipment (inverter) replacement cost ($1,200) in year 12.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual

 

Tax Savings

 

Net

Federal

 

After tax

Cummulative

 

Annual Savings

Finance    Cost

on Loan

 

Cost

Tax Credit

 

Cash Flow

Cash Flow

 

640.00

 

2000.00

 

570.00

 

1430

5,850

 

4420.00

4420.00

 

672.00

 

2000.00

 

579.00

 

1430.00

 

 

-758.00

3662.00

 

705.60

 

2000.00

 

570.00

 

1430.00

 

 

-724.40

2937.60

 

740.88

 

2000.00

 

570.00

 

1430.00

 

 

-689.12

2248.48

 

777.92

 

2000.00

 

570.00

 

1430.00

 

 

-652.08

1596.40

 

816.82

 

2000.00

 

570.00

 

1430.00

 

 

-613.18

983.22

 

857.66

 

2000.00

 

570.00

 

1430.00

 

 

-572.34

410.89

 

900.54

 

2000.00

 

570.00

 

1430.00

 

 

-529.46

-118.57

 

945.57

 

2000.00

 

570.00

 

1430.00

 

 

-484.43

-603.00

 

992.85

 

2000.00

 

570.00

 

1430.00

 

 

-437.15

-1040.15

 

1042.49

 

2000.00

 

570.00

 

1430.00

 

 

-387.51

-1427.66

 

1094.62

 

2000.00

 

570.00

 

1430.00

-1200

 

-1535.38

-2963.04

 

1149.35

 

2000.00

 

570.00

 

1430.00

 

 

-280.65

-3243.69

 

1206.82

 

2000.00

 

570.00

 

1430.00

 

 

-223.18

-3466.88

 

1267.16

 

2000.00

 

570.00

 

1430.00

 

 

-162.84

-3629.72

 

1330.51

 

2000.00

 

570.00

 

1430.00

 

 

-99.49

-3729.21

 

1397.04

 

2000.00

 

570.00

 

1430.00

 

 

-32.96

-3762.17

 

1466.89

 

2000.00

 

570.00

 

1430.00

 

 

36.89

-3725.27

 

1540.24

 

2000.00

 

570.00

 

1430.00

 

 

110.24

-3615.04

 

1617.25

 

2000.00

 

570.00

 

1430.00

 

 

187.25

-3427.79

 

1698.11

 

 

 

 

 

 

 

 

1698.11

-1729.68

 

1783.02

 

 

 

 

 

 

 

 

1783.02

53.34

 

1872.17

 

 

 

 

 

 

 

 

1872.17

1925.50

 

1965.78

 

 

 

 

 

 

 

 

1965.78

3891.28

 

2064.06

 

 

 

 

 

 

 

 

2064.06

5955.34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Cost per month = $12.32 over first 20 years

 

 

 

 

 

Average Benefit per month = $26.77 over first 25 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Increase in home value = $ 21,154.00 or $88.15 per month over first 20 years

 

Note: This 20 to 1 ratio is based on annual energy savings was estimated by the Appraisal Journal in

 

1998 and is cited by Wells Fargo Bank.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As you can see fromthe example the system for all practical purposes is “free”. In fact, the actual cash flow is positive until roughly year 7, butthe actual value added to the house increases from the first year andeach subsequent year as the saving increase.

So once a system hasbeen put in place the homeowner is basically getting “free” solarenergy, helping the planet, setting a great example for their kids andincreasing the value of their primary asset all at the same time. 

Berkeley was FIRST,but other communities and cities in CA are following their lead. SanFrancisco and San Diego are putting in place much bigger programs. I feel that once people realize the actual numbers involved it couldliterally sweep the country.  UC Berkeley did a study that projectedthat if this program was rolled out nationwide it would create up to$280 Billion in renewable energy and energy efficiency investment intoour economy and dramatically reduce CO2 exactly when our nation needsto stimulate the economy and reduce our carbon footprint

Have a SUNNY EarthDay!

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Mr. Lynch has worked, for 32years as an independent analyst and investor in small emerging technologycompanies. He has been actively involved in following developments inthe renewable energy sector since 1977 and is regarded as an expertin this field. He was the contributing editor for the past 17 yearsto the Photovoltaic Insider Report, the leading publication in Photovoltaicsindustry that was directed at industrial subscribers, such as majorenergy companies, utilities and governments around the world. He iscurrently a consultant to a number of technology and solar related companies.He can be reached via e-mail at: solarjpl@aol.com. Please visit his website: www.sunseries.net  for the promotion of solar energy.