As we mentioned early last week, San Francisco is launching a $150-million innovative loan program to help homeowners and businesses finance “sustainable building improvements.” Improvements that are eligible will include insulation upgrades, the replacement of old windows, the installation of low-flow toilets and (drumroll please….) the installation of solar electric panels and solar water heating systems!

For the benefit of you San Francisco-based readers, here’s a quick overview of the program, aptly named GreenFinanceSF. You non-San Francisco folks, don’t worry: many other municipalities, counties and states are adopting a similar approach to encourage residents and businesses to install solar, weatherize their property, etc.

How does it work?

Short answer: The city will loan cash to individuals and businesses who agree to repay the funds through a special tax levied against their property.

What types of properties will be eligible?

Residential and commercial buildings of all sizes. According to the program’s website, city officials are still finalizing project qualification criteria. One consideration to keep an eye on: the property owner’s tax and mortgage payment history. It’s likely — and reasonable — that funding will be made available only to those who have paid their property taxes on time for the past, say, three years.

Over how many years will the funds will be repaid?

The tax payment period will be indexed to the expected useful life of the improvements. In the case of photovoltaic (PV) systems, that probably means a period close to the program’s maximum payback window of 20 years.

How is it “innovative”?

Solar energy systems — particularly solar PV systems — cost a lot up front but deliver savings and other benefits over the long haul (we’re talking decades). By tying the loans to the property itself — rather than the owner — the program promises smoother transitions in the event the property is sold.

Also, consider that this is a lending program that arguably yields some broader benefits to the local community. Water-efficiency improvements, for instance, may reduce demand/stress on the local water authority. As such, it makes sense — at least at the intuitive level — that the funds should benefit the lending entity.

Where’d this idea come from?

The City of Berkeley, California in 2007 launched what was called the FIRST Solar Financing program, a pilot that financed the installation of solar energy systems. The program centered on Property-Assessed Clean Energy (PACE) project finance, an idea that has since gained popularity among California cities and counties — and, as noted above, is now being adopted by other state and municipal governments across the country. (Read more from UC Berkeley’s Renewable and Appropriate Energy Laboratory.)

Any other major considerations?

To participate, property owners will have to get a whole home energy audit, the cost of which may be included in the amount borrowed.

IMPORTANT NOTE FOR SOLAR BUYERS: “energy efficiency improvements are required prior to the financing of solar PV projects.” This is a best practice designed to maximize the performance of (and return on) your solar PV installation.

Can participants use any contractor?

Again, the city is still deliberating. According to the program’s Web site, the program’s objective is “to establish a ready supply of workers skilled in the energy and water projects common to San Francisco building types, with linkages to workforce development programs in an effort to grow our local green economy.”

San Francisco’s New Solar Energy Financing Option: What You Need to Know