San Diego's Solar Roof Program Capitalizes on AB 811; Creates Demand, Incentives for Economic Development

The office of San Diego Mayor Jerry Sanders recently proposed a solar roof program for the city to help homeowners and small businesses install solar systems. What is the mission and scope of that program?

AB 811, which is the legislation that enables cities and counties to do these projects, was a great opportunity to remove some of the barriers to entry for purchasing PV systems and other types of renewable energy for homeowners and, to some extent, small business owners. We also saw this as an opportunity for city government to create demand. By creating demand for these products, above and beyond what was already in the marketplace, it was a tool for economic development.

San Diego is eight times larger than Palm Desert, which is, to my knowledge, the only city in California that has an active program (with systems on roofs and having gone completely through the financing program). Berkeley has a program that has taken applications. They might have some systems on roofs, but they haven't gone though the complete financing cycle.

We've decided to start small with a pilot project and focus on 150 to 300 homes-to go through one cycle, six months to a year, where we focus on one technology, solar PV, with the goal of really getting good at the financing side of AB 811. That involves processing an application from a property owner, getting the applicants to install the equipment, working out the relationship between the property owner, the hardware installer, and the retailer, and then taking enough of these loans so we can aggregate them, bundle them together, and bring them to the municipal bond market. We want to take some time mastering that process.

Once we've done that, after about a year or so, it's our intention to expand the program to include a wide range of technologies, including solar hot water heating, other types of renewable energy, and energy efficiency. Down the line, we would like to see some changes to the AB 811 legislation that would allow us to do some water efficiency projects that currently are not allowed under the legislation.

Another important distinction between Palm Desert and Berkeley, in terms of how San Diego is proposing our program, is that we really don't want to operate it. To the greatest extent possible we are looking to the private sector to tell us how to go about implementing this program. We sent out a Request for Qualifications (RFQ) in January. We're going to take those proposals and come up with a very short list of maybe three or four firms we believe are most qualified. Then, based upon the information they provide us, we will create a Request for Proposal (RFP) and ask them to put together a formal bid. We're looking for a financing partner and an administrative partner.

Elaborate on how the city of San Diego sees AB 811 as valuable. What incentives does it offer that you are relying on?

For the city of San Diego, AB 811 is only one vehicle that we can utilize to create this kind of program. It is my understanding that chartered cities and counties have the ability to do a lot of the same things by creating other types of assessment districts, such as a Melo Roos district or some sort of a community finance district (CFD). There are benefits to going down that path rather than using an AB 811 assessment district. For San Diego, the most appealing thing for using our own charter authority, which we had long before the AB 811 legislation was passed, is that we could immediately incorporate new construction, where AB 811 does not allow for financing of projects on new homes or new commercial construction. Additionally, we could also immediately incorporate a lot of water efficiency elements that we would like to see down the line.

In terms of the benefits to the public, first and foremost, it gets back to the issue of easing barriers to entry to these renewable energy markets. Just looking at solar PV, we're estimating that the average system for a single-family residence is going to run anywhere from $20,000 to $35,000. Right now, if you or I want to install a $20,000 to $35,000 solar system on our own, we could do three things: we could get a home equity loan, we could get a personal line of credit or use credit cards, or we could use our own personal savings. For the average homeowner, none of those options are very appealing options-that much capital outlay for something that is going to take many years to see a return on investment, especially given the fact that the average home owner sells his or her property around every five years.

The most interesting aspect of AB 811 from that retail perspective is that it opens a new financing mechanism that ties directly to your property tax bill. You can purchase the type of system that you want, have it installed, and instead of paying for it in one lump sum, you can pay it off over a 20-year period. If you stay in the home the entire 20 years, five or six years out, depending on how you utilize the system, you'll start to see some returns. Hopefully you'll realize some savings on your energy bill much sooner than that. But in terms of actually paying for the system yourself it could be many years down the line. Ten years down the line you'll essentially have paid for the system and also benefit from the reduced energy bill.

If you sell your home five years or two years or six months down the line, the new property owner that will enjoy the benefits of that renewable energy system is going to continue making those payments as part of the annual property tax bill. That's just common sense to link those two together-the benefit of the reduction of an energy bill and the actual payment over that 20-year period. Right now, if you or I were to sell as a property owner, we'd still have that obligation of paying for the solar panels even though we don't live in that home.

What kind of input and process have you had in adopting this plan?

I always want to start by saying that right now we don't have a program: we have a concept that we're trying to develop into a program. One of the first things we did was go speak to some individuals in Palm Desert. We also spoke to some individuals who were familiar with the AB 811 program that Berkeley put together and got a feel for who is out there that actually knows how to do these types of projects. What we found out is that there are very few firms that have specialized in putting together AB 811 projects for cities or counties. That put us into a bit of a different procurement situation than we would normally find ourselves in.

After we figured out that there were very few who could actually do this, we had some informal meetings with people who claimed that they could. Most of these firms were not involved in the Berkeley or Palm Desert programs, but we got some general ideas on how they would recommend the city to go about putting together a program.

We took those general concepts and we sat down with a group of stakeholders that included CleanTECH San Diego, which represents San Diego's cleantech industry, SDG&E, solar installers, the city's energy office, the Environmental Services Department, the Planning Department, the Development Services Department, and our chief financial officer. We all got into a room and essentially brainstormed ideas and concepts that we wanted to see in an RFQ. We then passed the RFQ around to different stakeholders to make sure that we weren't forgetting anything that anyone felt was important, and then eventually we issued our RFQ.

After we get through the RFP process, we would like to give stakeholders a look at the actual program that is being proposed on the back end. That will include going to the local sustainable advisory board that the mayor has put together. It will have to before the City Council for approval. We will form whatever kind of assessment district we decide to use, be that an AB 811 assessment district, CFD, or Melo Roos district. And then we will open it up for public scrutiny.

What did you find or not find when you surveyed cities with solar programs in California?

The number one thing that we found, and one of the things that made AB 811 so appealing to the mayor and city of San Diego, is the fact that when most city governments start talking about installing PV on rooftops there is a large capital outlay by the city itself, usually in the form of general fund revenue. That wasn't an option for San Diego. That was a commitment we made to the public at the beginning of this process. AB 811 allows you to pass along whatever administrative costs the city has to the actual property owners that participate in the program. Essentially, we should be able to operate the program without any general fund impact to the city. Quite honestly, that was the most exciting thing that we saw in terms of a difference between AB 811 and what other cities were doing.

Additionally, we noticed that the city could take a back seat in the sense that it wouldn't be installing or deciding which type of system would be installed. Ultimately, those decisions will be left in the hands of the property owners. Ideally, when a property owner decides what part of San Diego's AB 811 program that he or she wants to get involved with, the first decision they will have to make is what type of renewable energy infrastructure to purchase. Initially it will be limited to a PV system, but once we move beyond our pilot program they will have a choice whether they want a PV system, a wind system, or a fuel cell. They will also be able to make decisions on whether they want to finance energy efficiency.

Hopefully, working with our administrative partner down the line, we can provide some education to the property owners so they can be informed consumers. We want them to know that maybe spending $5,000 on energy efficiency will give them more energy savings than a $20,000 PV system.

The city of L.A. has on the March ballot a charter measure that would give the authority to its municipal utility to pay for the costs of putting solar on the roofs of public and private facilities, paid for by rate payers and installed and managed by the employee of the utility. What concerns or enthralls you about that proposal?

It's a proposal that is very appropriate for L.A., from the perspective that their municipality, to a large extent, runs their utility. For San Diego that is really not an option. I know that SDG&E, our local power provider, has a lot of programs that allow small businesses to do that same type of thing on a small scale. They can fund some energy efficiency programs and even some renewable energy programs. On a macro level, looking at single-family residences and commercial and industrial properties, it isn't an option for us.

What are your thoughts on the pros and cons of distributing such a program to the private sector versus wrapping this up under one municipal utility and its union workforce?

When you're dealing with a municipal utility you're going to have a lot of regulations and additional costs associated with government. That is one of the reasons that we would like to operate our program outside of city government. There are greater efficiencies in the private sector than can be found in government.

Diversifying renewable energy options under the AB 811 program will mean additional competition. To the greatest extent possible, we will let the marketplace dictate whether union labor is used or not used. To the greatest extent possible, consumers are going to pick the best technology for them. When you diversify and encourage competition, consumers will see lower prices.

L.A.'s initiative is called the "Green Energy and Good Jobs for Los Angeles Act," and it will probably run through entry level jobs in the LADWP employee system. What are you looking for in way of the economic development of San Diego? What do you see happening as a result of this demonstration program in terms of economic development?

We think it will be a draw for the biotech cluster, which we worked hard to build in San Diego. We're working hard now, through the efforts of CleanTECH San Diego, the city, and Mayor Sanders, to build a cleantech cluster here in San Diego. We are really excited about AB 811 and the endless possibilities of renewable energy projects that you can finance with this. We are not just creating demand for solar PV. Eventually consumers will have a wide range of choices.

As there is a greater demand for these technologies in the San Diego region, it is our hope that by creating demand we will draw more of these businesses here. We are hoping to create new jobs in the solar energy arena in terms of installers, retailers, and manufacturers. We have a few solar manufacturers in our town already and we would like to give them reasons to expand here.

When you purchase energy off the grid it doesn't necessarily come from your local region. The jobs associated with that energy could come from hundreds of miles away. All that money could go back into our economy.

How will you evaluate success?

With the pilot program, success is completing the financing cycle, collecting 150-200 loan packages, and aggregating those smaller loans into larger packages that can be sold off on the municipal bond market.

With the larger project, success will be defined by the utilization of the program. We haven't defined specifically the percentages of property owners or a number of participants but once we open it up to other types of renewable energy and a larger field of energy efficiency projects, success will be the utilization of our program.