Solar San Francisco: Pursuing innovative financing options despite City (and State) economic strains

I love San Francisco.  It’s indescribably beautiful, culturally alive in its mix of posh and quirky neighborhoods. People are unusually courteous and friendly, I believe, because they love living in San Francisco.  My own personal consumption of coffee baked goods and ice cream increases by several orders of magnitude when I’m there.  It’s a busy place, always lots going on.

This time was no exception.

I was aware of the city and state’s gloomy economics.  Statewide, the budget deficit was hovering around $19B while San Francisco’s deficit, north of $520M, is, by all accounts, the worst in its history.

The day before I arrived, parents, students, faculty, and school staffers throughout California staged a statewide ‘day of action’ to protest cuts to education funding.  The day I arrived, the big news was the lay offs for some 26,000 of its 40 hour/week employees, 15,000 of whom could get their jobs back if they went to a 37.5 hour work week and pocketed a smaller paycheck .

That’s the day I stopped in to visit Danielle Murray and Jade Juhl of SF Environment, a department of the City and County of San Francisco, and the home for San Francisco’s Solar America City Initiative.   We met, not surprisingly, for coffee, to talk about the work of Solar San Francisco (BTW, they’re two of those employees who get a shorter work week and a smaller paycheck).

Despite the glum financial environment, neither Danielle nor Jade was deterred.  “We know we’ve got some hurdles ahead, but we’ve got so much work to do,” said Murray.

San Francisco became a DOE Solar America City in 2007, and in October 2009 received a Special Projects Award to develop innovative solar financing alternatives for small commercial systems, public schools, and affordable housing, and to help support San Francisco’s new PACE financing program, GreenFinanceSF.  Johanna Partin, Murray’s predecessor, put the Special Projects request together before she moved to the Mayor’s Office to act as his Director of Climate Protection Initiatives.

“Traditional Power Purchase Agreements (PPAs) have worked well for megawatt-plus sized power systems,” said Juhl.  “Tax credits, income generated from the sale of electricity to the customer, and lower relative transaction costs make larger systems more attractive to PPA providers, but it leaves a financing vacuum for smaller projects.  We’ve heard from commercial customers who would be able to utilize smaller systems in the 10-100 kW range that they want more financing options such as PPAs. We want to explore the potential to develop PPAs or other innovative financing models that can reach down to systems of this size.”

Another task of the City’s Special Project award is developing a solar financing model appropriate for the affordable housing community.

“This is a really unique and challenging assignment,” said Juhl.  “Affordable housing issues are inherently difficult because, at the least, there are typically multiple funders involved: federal, state, local.  There are also privately owned public housing providers.  The legal and tax structures are often complicated, and funding is tight for measures with high upfront costs, such as solar.”

Murray said that some local affordable housing partners are already conducting capital needs assessments on their properties, and she hopes solar might fit into those upgrades, particularly where roofs and heating systems are being replaced.  “We’re open to both solar PV and solar thermal technologies, but solar thermal is our focus,” she said.  “Affordable housing, like other multi-residential buildings, has the hot water load to make solar water heating financially viable, and it would make a large dent in their carbon emissions and move us closer to our city’s climate change goals.”

Both Juhl and Murray agree that the amount and quality of activities going on with the Solar America Cities across the U.S. is exceptional.

“There’s a lot of good work going on with a trend towards coordinated efforts between local and regional organizations, and Solar America Cities, to replicate best practices and results across the country.  These groups are working on critically relevant issues, such as expedited permitting,” said Juhl.  “The work of the Solar ABCs Initiative will be very useful for cities looking to standardize their solar permitting requirements.”

According to Murray, San Francisco’s solar PV permitting has been on the fast track for a while, and now, despite a 50% staffing cut in the buildings department (due to the drop in building and construction activity and the City’s financial woes), the city has turned its attention to solar thermal permitting.  Working with the Department of Building & Inspection and the City’s Solar Task Force, the Department of Environment is helping develop streamlined, standardized permit requirements and application processes for solar thermal, complimenting the work they’ve already done on solar PV. In January, the city also offered its building code inspectors an IREC solar thermal training with Christopher Warfel

What’s next?

“We’ll be working with our stakeholders to continue to address the vacuum in financing options for small commercial buildings, affordable housing, and public schools,” said Juhl.  “San Francisco public schools receive low-cost hydro power from our Public Utility Commission, but community members would like to see more solar on these buildings.  Finding a financing vehicle or other innovations that can help support or influence their decision to use solar will be a big accomplishment.”

The Department of Environment is also gearing up to roll out San Francisco’s PACE program, GreenFinanceSF, in April.  PACE financing allows property owners to borrow money for water and energy efficiency improvements and renewable energy installations. The amount borrowed is repaid through a special assessment on the property tax bill over a period of years (based on the expected lifetime of the improvement).  While San Francisco used a special Mello-Roos tax district to enable their program, in July 2008, California amended its state law to enable other cities and counties to offer PACE financing programs to property owners, similar to the existing programs in Berkeley and Sonoma County.

“We’ve got challenges on several levels,” said Murray, “and sometimes it’s hard to talk solar in a severe budget downturn, but here in San Francisco, we enjoy lots of public and mayoral support.  We’re luckier than most.”

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