Wednesday, November 07, 2007

Will Berkeley spark a solar revolution?

Yesterday, the Berkeley City Council unanimously approved an ordinance that will finance PV systems and energy efficiency improvements for homeowners in the city.

Though the plan was announced last week, I haven't had a chance to blog so this is as good a time as ever to write a few words about it.

When I first heard of this, it struck me as one of those "only in Berkeley" type things and rubbed my libertarian streak the wrong way, leading to ornery thoughts.

It's been a long time coming, right? How come the private sector can't get it together to provide financing for residential PV? It has always seemed like a fantastic opportunity for an entrepreneurial approach, so it seems like Berkeley is competing directly with private enterprise here.

But can you usurp private enterprise, if the service isn't really being offered by the private sector? I guess not.

I've come around. The way this is structured is actually brilliant and everyone wins.

So in a nutshell, the deal is that the City pays the upfront cost for the installed system. Then, an assessment is added to the property tax, and through this assessment, the homeowner pays the City back with interest over 20 years.

So here are the main points:

First, (assuming the system is sized properly) the assessment is less than the utility savings, so
it is cash-flow positive for the homeowner; and of course after 20 years, it's free power.

Second, the system and the assessment belong to the property, not to the homeowner. This is critical. It means that value of the system will be properly appraised as part of the property, so there is no risk of losing the value of the system upon sale of the house. Moreover, whether an owner stays in the house for 1 year or 30 years, they still see all upside.

Third, the City is raising the money with a municipal bond; the lowest interest rate anywhere; passing this through to the homeowner helps make the economics compelling.

Fourth, the City gets a guaranteed revenue stream.

The biggest issue that I see is that demand in Berkeley is going to utterly explode. I have a hard time imagining that nearly every homeowner in Berkeley who gets wind of this won't try to sign up. I don't know how any of the local installers will keep up, in the short term at least.

This sounds like a nice problem to have, but of course the concern is that there could be a proliferation of naive, and in all probability (like in any "gold rush") some opportunistic new installers and service providers doing this work -- and doing a bad job. Of course most new entrants will be honest and competent, but it's the inevitable bad apples that worry me.

Balancing exceptional industry growth and the need for installers to support that growth are the realities that properly installing 30-year service life equipment is not easy, there is a rather complex set of reliability, safety, and regulatory / rebate issues to grapple with, and customers who may not have realistic expectations due to relentless solar hype are not necessarily the easiest to please.

The other substantive concern I have is if the contract with the City (and thus the assessment) includes periodic inverter replacements, or whether the homeowner is on the hook for it on their own. Modules are typically guaranteed to product at least 80% of their rated power after 25 years, but most inverters carry a 10 year warranty. This means it is very likely that at least one inverter replacement at the owner's cost over the system lifetime, and possibly two, will be required. At a couple thousand bucks a pop (depending on size) this has implications for system economics. An honest and professional assessment of system economics should assume these maintenance costs as well as the slow degradation in power output.

The inverter issue is quite problematic if a new owner moves in just before the inverter fails out of warranty, and then has to either shell out cash for the equipment, pay the assessment even though they are getting no benefit, or try to get the property assessment canceled (in which case the city is left holding the bag). The city says it will roll out the plan in about 8 months, so hopefully will have the foresight to address this issue.

All that said, assuming this doesn't get bungled up in red tape or political shenanigans -- and there's never a guarantee there, especially in B-town -- it seems inevitable that this idea will spread quickly.

One of the most interesting aspects of solar these days is the leadership of the states in successfully setting de facto national energy policy in the current leadership vacuum at the Federal level. It appears that Berkeley has taken this one step further.

Potentially, this initiative could serve as a seed crystal for a concept that could radically impact the way we produce electricity, nationally, even internationally - one town at a time.