At the end of 2011 there were approximately 100,000 installations and 1GW of solar PV in California (1). The state has dual goals of one million solar roofs by 2018 and 12 GW of distributed generation by 2020. Can California cities scale their clean energy infrastructure by an order of magnitude over the next six to eight years while attracting investments and generating local jobs?
The math says yes and the answer to the future of clean distributed energy in California may be found in Sonoma County.
Sonoma County and the Future of Energy
Here’s the math: the city of Sonoma had 507 solar watts per resident and 4.5 solar installation per 100 residents at the end of 2011, according to Environment California’s “California Solar Cities 2012”. (1) This does not sound like much. However, if you extrapolate these numbers
Solar PV panels in San Francisco, CA
to California’s 38 million residents, the state would have 19 GW and 1.7 million installations of solar. This would mean that the Golden State would surpass its 2020 distributed generation goal by 45% and the number of solar installations by 70%.
Sonoma achieved these numbers in less than three years, in the midst of a national financial crisis, and despite opposition from Federal Housing Finance Agency.
Is it a stretch to think that California cities and counties can achieve over the next eight years under friendlier economic conditions and ever-decreasing solar costs what Sonoma has done in less than three years?
What is the Sonoma County Energy Independence Program?
The centerpiece of Sonoma’s clean energy program is the Sonoma County Energy Independence Program. SCEIP is a PACE (Property Assessed Clean Energy) program established March 2009 with the goal of “improving performance in 80% of Sonoma County homes and commercial spaces to highest cost-effective efficiency levels.”
PACE is a local municipality finance program that enables municipal governments to tap private capital markets to finance energy efficiency and clean energy projects for homes and commercial properties through an assessment on their property taxes.
Sonoma County’s PACE program for instance has the following characteristics:
• The financing takes the form of an assessment, not a loan. Unlike a loan, an assessment is attached to the property rather than the individual.
• The assessment takes the form of a lien, so the payback responsibility automatically transfers to subsequent owners if the property is sold before the assessment is fully paid off.
• Financing must be 10 or 20 years and is paid through an assessment on the owner’s annual property taxes.
• Improvements must be permanently fixed to the property.
• Project size must be less than 10 percent of the value of the property.
PACE financing was originally designed to get around the fact that energy efficiency and clean energy investments have longer-term payoffs while the capital costs generally need to be borne up front. The concept of PACE was created in 2005 in California and soon spread to 23 states around the nation. (2) and (3)
Boulder County, Colorado, for instance, quickly became an early adopter of PACE Financing with its Climate Smart Loan Program (CSLP).
Boulder County’s CSLP was a $9.8 million PACE program that financed 598 projects and was completed in 2009. According to a study carried out by the Department of Energy’s National Renewable Energy Labs, spending in Boulder County alone contributed to $14 million in economic activity, $5 million in earnings and 85 short-term jobs within the county as well as $6 million in additional economic activity, $2 million in additional earnings and 45 jobs outside of Boulder County. (4)
Sonoma County’s Energy Independence Program was created with $60 million in funding: $45 million from the County Treasury and $15 million from the County’s Water Agency. SCEIP has funded $58.5 million worth of projects that have resulted in 2,855 residential and 87 commercial energy retrofit projects. They estimate that 79% of the 682 jobs generated by this program have been local jobs.
While I only highlight solar, SCEIP has funded more than a thousand non-solar projects, including more than 500 windows and door, 200 HVAC, and 200 sealing and insulation projects.
Since SCEIP originally raised $60 million and has already funded $58.5 million worth of projects, I wondered whether they planned to raise another round of funding. I talked on the phone with Diane Lesko, the Sonoma County Energy Independence Program Program Manager, who told me that $11 million has already been paid back so they may have another year of runway before they need to go back and issue new bonds.
Is Solar a Better Risk than Mortgages?
The one major hiccup in Sonoma County’s path to energy independence happened in July 2010 when the Federal Housing Finance Agency released a “Statement on Certain Energy Retrofit Loan Programs”.(5) The FHFA, which oversees Fannie Mae, Freddie Mac, and Federal Home Loan Banks, argued that “first liens established by PACE loans … pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors.” This basically brought the quick adoption of PACE programs around the nation to an abrupt halt.
I asked Ms Lesko about the FHFA assertion that PACE-funded energy retrofits might be high risk investments. She said that the default rate on the Sonoma County PACE program is 1.1% whereas the mortgage default rate is around 10%.
This begs the question of whether it’s the Federal Housing Finance Agency who should be learning about risk management from Sonoma County rather than the other way around!
The FHFA ruling brought uncertainty into the PACE world and SCEIP was temporarily halted – but only for one week, according to Ms Lesko. The Sonoma County leadership decided to reopen it with increased vigor. Leadership is clearly one of the key ingredients in making a clean energy economy happen. This reminded me of John F. Kennedy’s Rice University speech: “we choose to go to the moon not because it’s easy but because it’s hard.”
Sonoma County’s Energy Independence Program has shown what can be done when local governments take charge of their own energy destinies. What about California’s hundreds of cities and dozens of counties? Can they match Sonoma’s success?
There are five reasons why cities and towns across California can match and surpass Sonoma’s solar buildout:
1) They have a working template and the benefit of Sonoma County’s learning experience.
2) The cost of solar is far lower today than when Sonoma County started this program three years ago. Photovoltaic panels dropped by 50% in 2011 alone and have dropped further this year.
3) We have a better economy than we had when Sonoma County started its program in early 2009.
4) Cities have eight years to do what Sonoma did in just three.
5) Municipalities now know that PACE can work without the support of the FHFA. Still, the FHFA may yet see the light and make rules based on the evidence from Sonoma County and other PACE programs that the right PACE energy retrofit program can bring lower default rates than Fannie or Freddie mortgages.
So there you have it: five reasons why California’s dual goals of one million solar roofs and 12 GW distributed clean energy generation are more than achievable by 2020 – just by using PACE financing.
We can add yet another reason: PACE is but one of several mechanisms that cities and counties have at their disposal to create a thriving clean energy economy. I’ll be discussing some of them in future posts.
What if the whole country emulated Sonoma County?
I mentioned that PACE had enabling legislation in 23 states and was being considered in 20 more states around the nation.(3)
Sonoma and Boulder County’s success in attracting investments, creating jobs, and building a clean energy economy has spurred other municipalities around the country to adopt PACE programs. Miami-Dade County, FL, for instance, has announced a $550 million commercial PACE program led by Ygrene Energy, a Santa Rosa (Sonoma County)-based financial services company.(7) Ygrene is also targeting a $100 million PACE fund for Sacramento, CA. These two PACE programs together will generate 17,000 jobs and $2.3 billion in economic activity, while using private capital only, according to the PACE Commercial Consortium.(8)
If the whole US achieved Sonoma’s 507 solar watts per resident and 4.5 solar installation per 100 residents by 2020 we would have 159 GW of solar and 14 million solar installations. This wattage would be six times larger than what Germany, the world’s solar market leader, has achieved so far and it would represent about 15% of America’s peak power needs. Sonoma did its part in just three years.
I asked Sonoma County Energy Indepence Program’s Diane Lesko what were the most important ingredient in building it into a winning program. “Political will,” she said without missing a beat. “You need leadership coming together to achieve our common goals.”
Sources:
(1) “California Solar Cities 2012”, Environment California Research & Policy Center , January 24, 2012 http://www.environmentcalifornia.org/reports/cae/californias-solar-cities-2012
(2) PACE Financing, Wikipedia, the Free Encyclopedia, http://en.wikipedia.org/wiki/PACE_Financing
(3) “What is PACE?”, http://pacenow.org/blog/about-pace/
(4) “Economic Impacts from the Boulder County, Colorado, ClimateSmart Loan Program: Using Property-Assessed Clean Energy (PACE) Financing”, National Renewable Energy Labs, July 2011
(5) Federal Housing Finance Agency, “FHFA Statement on Certain Energy Retrofit Loan Programs”, ase.org/sites/default/files/nodes/2200/FHFA_PACE.pdf
(6) “FHFA, The comments have been submitted, but what happens next?”, http://pacenow.org/blog/talking-points-for-fhfa-rulemaking-anpr/
(7) North Bay Business Journal, “Santa Rosa-based Ygrene leads $650 million green-retrofit effort”, Sept 23, 2011, http://www.northbaybusinessjournal.com/40821/santa-rosa-based-ygrene-leads-650-million-green-retrofit-effort/
(8) “PACE Commercial Consortium” Briefing, http://www.energi.com/docs/mobilize/PACE-Commercial-Consortium-Briefing-Prepared.pdf
{ 0 comments }
