For decades, the push for solar power has stalled not on public support but on cost. That might be about to change with the launch of a tax program that's exciting some industry veterans.
Gary Garber is one. Garber built his first solar panels from scratch back in 1976. They went up on his parents' rooftop in nearby Walnut Creek, Calif. Today he runs Sun Light & Power, a 60-employee solar panel installation firm that's been behind some of the San Francisco Bay Area's biggest solar power arrays.
Like many other "alternative" industries, solar energy has gradually gone mainstream, scaling up operations, driving down costs — even partnering with local governments to promote renewable energy.
Yet it still generates less than 1% of the nation's electricity. Why? Because a typical residential system's $25,000 price tag is a huge hurdle for most homeowners.
Clearing that hurdle is the main mission behind an effort gaining momentum around the country called Property Assessed Clean Energy, or PACE. It allows people to borrow money from municipalities for energy efficiency upgrades and pay it back through their property taxes.
Gerber said the key to the program's success was that energy savings paid for by PACE could be used to offset those higher property taxes.
"Let's say you replace your $100 utility bill with a $100-a-month payment to your property taxes — it's pretty close to a wash," said Gerber, who also serves as president of the California Solar Energy Industries Assn. "And if it isn't a wash this year, then two or three years from now it will be, because energy costs are going up.
"You're basically saying, 'I'm going to pay the same amount for energy for the next 20 years. I'm going to peg my energy cost to today's costs.' That's pretty compelling."
PACE was launched in 2007 as a pilot project hatched by Cisco DeVries, a former assistant to the Berkeley mayor. When the Berkeley test took off, states began passing legislation to allow municipalities to create their own programs. DeVries now works as president of Renewable Funding, a private company that helps cities start PACE programs.
At last count, 19 states have passed PACE legislation, including California, Florida, Texas, New York, Massachusetts and Maine.
Some local governments, such as Sonoma County and Boulder, Colo., have set up PACE programs on their own. Sonoma's is called Sonoma County Energy Independence Program.
Santa Rosa, Calif., resident Ed Smith said he heard about the county program a few months ago at a local home improvement show and decided to give it a try.
Smith had 32 solar panels installed on his home at a cost of about $5,000, including a discount for being among the program's first participants.
He figures his property taxes rose $100 a month while his electric bill has dropped as much as $300 a month over the last four months.
"It's been totally fantastic," Smith said. "We'd been wanting to do something green. I've been recommending it to my neighbors. It would be a great thing for schools to do since they have flat roofs that catch a lot of sun. Plus school districts need to save money."
John Haig, Sonoma County energy and sustainability manager, said there was a surprisingly strong response to its version of the PACE program. Its energy improvement loans charge 7% interest and participants can choose to pay them off in 5, 10 or 15 years.
So far, Sonoma County has been paying about $2 million a month for energy improvement projects. Haig said the money had helped local contractors withstand a slowdown in residential construction.
Sonoma County initially put up the money for the loans, but plans to issue bonds or other debt instruments backed by property owner payment schedules.
"The appeal of the program is inherent in the financing model," Haig said. "It provides an ability of people to get over the first cost hurdle, which is what stops many people from doing these sorts of projects, and allows them to keep the financing with the property should they happen to sell it.
"They don't have to feel like they're going to have to pay for a solar array that they're leaving in the home in five years, because it stays with the property and the next person picks up the cost," Haig said.
Wayne Seaton, head of the sustainable public infrastructure group within Wells Fargo Securities' government and institutional banking unit, said his group had been helping municipalities set up the necessary financing.
"Our role would be to enable municipalities to acquire funding mechanisms for PACE programs and to arrange for cost-effective financing," Seaton said. "As PACE evolves, we're confident you will see financing mechanisms coming to the marketplace including bonds."
Berkeley Mayor Tom Gates said his city was planning to pool resources with several other communities under a program called California First to relaunch its PACE program this year, three years after the pilot program.
"We're really happy that this is one of the programs that got started in Berkeley, and it's just taken off like wildfire," he said. "We found that as good as the program was, you actually need to go to scale."
Banding together with other communities will help cut administrative costs, he said.
"This is actually a free-market approach, believe it or not, that started in Berkeley; a free-market approach to take solar and make it go all over the United States," Gates said. "It's all done through lenders putting up the bonds and placing it on the property. So it's a good mechanism that's shown it can travel."
Solar panel installer Gerber said other issues also needed to be worked out, such as keeping interest rates low and ensuring that contractors are paid promptly.
In the wake of the real estate crash, Fannie Mae and Freddie Mac, which guarantee many U.S. mortgages, are taking a close look at PACE loans. Some are wary of a program that would increase debt levels while home prices continue to drop.
"It's got all the right economics to take off in a huge way and then cause huge losses," David Felt, a retired senior Federal Housing Administration lawyer, told the Wall Street Journal recently. "When you're able to market to people who can't get financing for an ordinary home-equity loan, that should set off alarm bells."
Gates said borrowers must have a good credit rating and equity in the home to qualify. He said the federal government could guarantee PACE bonds and help keep interest rates lower.
Gelsi writes for MarketWatch.com/McClatchy.