Ask any energy professional what the biggest hurdle for potential customers interested in energy efficiency is and they’ll almost always give you the same answer: financing.  The upfront costs of many permanent energy efficient solutions, such as solar panels, are often simply too high for people to afford despite the fact that they pay for themselves again and again over the long term.

Long term, permanent energy efficiency measures are just that: long term and permanent.  They are also expensive, with the average cost of an installed solar panel system currently running about $8 per watt.  This leaves people who would otherwise be interested in something like a solar panel system for their home reluctant to invest so much additional money into a property they may end up selling before the investment pays itself off.

This demand barrier may become a thing of the past, however, if a new, innovative financing method started in California last year goes nationwide.  In November of 2007, the city of Berkeley, California approved a concept for a new financing program that would allow home and business owners to eliminate the upfront costs of solar photovoltaic energy systems by giving them the opportunity to borrow money from the City’s Sustainable Energy Financing District to install the systems and allow the cost to be repaid over 20 years through an annual special tax on their property tax bill.

In July of 2008, governor Arnold Schwarzenegger signed Assembly Bill 811 into law, which authorizes cities and counties throughout the state to develop their own, similar financing programs that allow property owners to finance renewable generation and energy efficiency improvements through low-interest loans that would be repaid as an item on the property owner’s property tax bill.

While each city or county is free to develop their own program and decide which projects are eligible for funding, the concept is the same.  A property owner who wants to install a renewable energy generation system or make other energy efficiency improvements that are permanently fixed to the property is eligible to take a low interest loan from the city or county and repay it over time as an item on their property tax bill.  This allows people to avoid the upfront costs of these measures and also ensures that the financial burden stays with the property instead of following the investor should the property change hands.

The funding for AB811 programs may come from several different places.  The Palm Desert program, for example, authorized $2.5 million from the city’s General Fund for the Energy Loan Program Fund to fund projects under the Energy Independence Loan Program.  Other options include issuing municipal bonds, partnering with utilities to get financing or setting up private financing.

In addition to Berkeley’s Financing Initiative for Renewable and Solar Technology (FIRST) program, pilot programs are in development or have already begun in the cities of Palm Desert, Napa, and Encinitas, as well as Los Angeles County, Sonoma County and San Diego County.  There is also a statewide program in development that cities could opt in or out of.