You asked for information about programs in other states to promote renewable and alternative energy technologies by spreading their cost over their useful life.

SUMMARY

There are at least five types of programs used in other states to spread the costs of renewable and alternative energy technologies over their useful life. These are loans, leases, the authorization of districts that provide financing for renewable energy systems, using the property tax system to facilitate such financing, and financing large renewable energy projects through state bonds.

This report describes loan programs in Alabama, California, Hawaii, Idaho, Iowa, Montana, New Jersey, and New York. Loans can be offered to all or some classes of utility customers by state agencies, municipalities, utilities or other private firms, or by public/private partnerships. Some of the programs described in this report require the customer to match the loan with his or her own resources, e. g. , a commercial loan. In addition to direct loans, New York has a state program that reduces the cost of commercial loans by buying down the interest rate. In New Jersey, a utility-administered program uses renewable energy credits (RECs) associated with the power produced by photovoltaic (PV) systems to back the loans for such systems.

In lease programs, the lessor agrees to purchase, install, and own a renewable energy system while a second party agrees to host the system and purchase the electricity it generates over an extended period of time. The lease agreement may also provide for the lessor agreeing to provide on-going operations and maintenance services.

Several states have authorized municipalities to create special districts whose powers include the long-term financing of renewable energy and energy efficiency measures. The districts can typically finance these measures using bonds.

Finally, Idaho, Illinois and New Mexico allow state financing authorities to issue bonds to finance large renewable energy projects.

Several of these measures have been adopted in Connecticut. For example, the Connecticut Clean Energy Fund has a solar lease program. Information about this program is available at www. ctcleanenergy. com/YourHome/CTSolarLease/tabid/379/Default. aspx. The legislature has also authorized municipalities to establish energy improvement districts, whose powers include the financing and development of distributed generation, e. g. , small power plants using renewable resources.

Illinois, Maryland, North Carolina, Texas, and Virginia have adopted legislation enabling municipalities to provide loans for renewable energy systems to their residents. The loans are repaid by assessments that apply to the properties where these systems are installed. Both the system and the assessment are tied to the property. OLR report 2009-R-0031 describes how Berkeley, California implemented a program using this model.

Much of the information in this report is taken from a 2009 report by the National Renewable Energy Laboratory, which is available at www. nrel. gov/docs/fy09osti/44853. pdf, and the Department of Energy's Database on State Incentives for Renewables and Efficiency, available at www. dsireusa. org/.

LOAN PROGRAMS

Direct Loans

Through a private/public partnership with PowerSouth, a local electric company, Alabama's Local Government Energy Loan Program offers no-interest loans to local governments and schools for renewable energy systems and energy efficiency improvements that will eventually have a payback through utility savings. Under the program, municipal and county governments may borrow up to $ 350,000 for eligible projects, and school districts may receive up to $ 350,000 per campus or $ 500,000 per school district for eligible projects. Eligible renewable energy resources generally include biomass, hydropower, geothermal energy, wind energy, and solar energy. Further information on the program is available at http: //adeca. alabama. gov/C3/Local%20Government%20Energy%20Loan%20P/default. aspx.  

In California, New Resource Bank finances the installation of residential PV systems. The bank offers homeowners fixed rate solar home equity loans for terms of either 15 or 25 years. To qualify, homeowners must have an aggregate loan balance to home value of less than 75%, verifiable income, and a credit score of at least 680. Interest rates for the program range from 6. 5% to 7. 5% depending on the financial situation of the homeowner. Further information about this program is available at

www. newresourcebank. com/personal-banking/solar-home-equity. php

The Honolulu Solar Roofs Loan Program was developed through a partnership between Hawaiian Electric Company (HECO) and the City and County of Honolulu. The program offers low-interest (0% or 2%) loans to low- and moderate-income homeowners or landlords who rent to low- and moderate-income tenants on Oahu to install solar water heating systems through the city's Rehabilitation Loan Program. The contract occurs between the City and County of Honolulu, which provides the funding, and the residential customer, with HECO facilitating the installation of the solar hot water heaters.

The loans are available for single-family homes, condominiums, and co-ops. The maximum loan is $ 80,000 for each unit for owner-occupied properties, up to four dwelling units, not exceeding $ 125,000 per property. For all other properties, the maximum loan amount is determined by a formula. Most solar hot water heater installations cost approximately $ 5,000 to $ 6,000. Loans are secured by a promissory note and a mortgage on the property.  A city/county website, www. co. honolulu. hi. us/dcs/faqs. htm, addresses frequently asked questions regarding the program.  

The Idaho Office of Energy Resources administers low-interest loan programs for a variety of renewable energy projects. Eligible technologies include solar water and space heating, PVs, landfill gas, wind, biomass, hydroelectric, geothermal heat pumps, cogeneration, and direct-use geothermal. Projects must be consistent with the state energy plan. For off-grid projects, use of a renewable energy resource must be the least-cost alternative. For grid-tied renewable energy projects, the payback period must be 15 years or less. Renewable energy projects that are intended to sell the energy generated or the commodity produced (e. g. , biomass) are not eligible for the program. The interest rate is 4% with a five-year repayment term. The maximum loan is $ 15,000 for the residential sector and $ 100,000 for projects in other sectors, except that the maximum loan amount for all PV projects is $ 15,000. Further information about this program is available at www. energy. idaho. gov/financialassistance/lowinterestenergyloans. shtml

Montana's Alternative Energy Revolving Loan Program provides loans to individuals, small businesses, local government agencies, university system units, and nonprofit organizations to install alternative energy systems that generate energy for their own use. Alternative energy systems eligible for the program include fuel cells using non-fossil fuel, geothermal, low emission wood or biomass, wind, PVs, and small hydropower systems.  The maximum loan amount is $ 40,000 (subject to available funds) and the maximum loan period is 10 years. Interest rates are set annually and are fixed for the term of the loan. The rate for 2009 is 3. 5%.  The program is funded by air quality penalties collected by the Department of Environmental Quality, which administers the program. Further information about the program is available at www. deq. state. mt. us/energy/Renewable/altenergyloan. asp.

Matching Loans

Iowa's Alternate Energy Revolving Loan Program (Iowa Code Sec. 476. 46) was created to promote the development of renewable energy production facilities in the state. The $ 5. 9 million in program funds were provided from the state's investor-owned utilities. The legislature chose the Iowa Energy Center to manage the program.

The Energy Center offers loans based on both the technical merit of a project and the applicant's financial qualifications. The Energy Center provides loan equal to 50% of the total financed cost of a project, up to $ 1 million, at 0% interest. Matching financing for the project must be obtained from a lender of the applicant's choice. As the loans are repaid, the Energy Center's share of funds becomes available for loans to future projects. Further information about this program is available at http: //www. energy. iastate. edu/AERLP/.

Interest Rate Buy-downs

In addition to cash incentives, the New York State Energy Research and Development Authority (NYSERDA) offers an interest rate buy-down program to homeowners; both measures can be used simultaneously. In the buy-down program, the homeowner enters into an agreement to borrow money from a participating lender. NYSERDA makes a one-time payment to the lender to reduce the borrower's interest rate by up to 4% (up to 6% for Consolidated Edison customers). Loans are capped at $ 20,000 ($ 30,000 for Consolidated Edison customers) with a maximum term of 10 years. Further information about this and related programs is available at www. nyserda. org/loanfund/.

Loans Backed By Renewable Energy Credits

New Jersey, like Connecticut, has a renewable portfolio standard (RPS) that requires electric companies to get part of their power from renewable resources and allows them to meet this requirement by purchasing renewable energy credits (RECs) on the wholesale electric market. Unlike Connecticut, New Jersey has specific requirements with regard to solar power.

In April 2008, one of New Jersey's major electric companies, PSE&G, received approval from state regulators to offer a solar loan program to support the deployment of 30 megawatts (MW) of PV in the next two years. PSE&G plans to invest $ 105 million in the program. Of the 30 MW, a total of 9 MW will be allocated to residential PV systems, of which 3 MW is allocated to multi-family, affordable housing). The utility estimates that approximately 900 new residential systems will be financed by the solar loan program.

In July 2008, PSE&G opened the application process for residential systems. The loan covers up to 60% of the cost of a PV system. The loan carries a fixed interest rate of 6. 5% and has a 10-year term. The solar panels must have a 20-year warranty. The loan size is based on the expected total generation of solar RECs so that the revenue from solar REC sales closely matches the loan payments. The borrower must repay the loan by selling all solar RECs generated by the PV system to the utility, supplemented by annual cash payments if the PV system does not generate enough solar RECs. PSE&G has set a floor price for the solar RECs at 47. 5¢ per kilowatt-hour (kwh). The borrower can sell at either this price or the market price, whichever is higher. If the solar REC

market prices are high enough that the loan is paid off before the end of the 10-year term, PSE&G can continue to buy the RECs through the end

of year 10, at 75% of the market value at that time. Further information about this program is available at www. pseg. com/customer/solar/index. jsp.

LEASING PROGRAMS

In leasing programs, one party agrees to purchase, install, and own a renewable energy system while the customer agrees to host the system and purchase all the electricity it generates over an extended period of time. The model reduces the up-front cost of purchasing a system. The lease agreement may also provide for the lessor agreeing to provide on-going operations and maintenance services. This can be an attractive feature for customers who want to benefit from renewable power but are intimidated by the perceived maintenance aspects of system ownership.

Typically, the electricity price is set at a rate competitive with the customer's current utility retail rates in the first year. Depending on the agreement, this rate may escalate each year by a pre-determined rate or remain fixed for the life of the contract. While it is usually not guaranteed, the expectation is that future retail electricity prices will be higher and more volatile than the electricity price agreed to under the purchased power agreement (PPA). If the local utility has a net metering policy in place, the homeowner is credited for any excess electricity sent back to the grid.

The combination of a participating customer's monthly lease payment and monthly utility bill is typically less than the utility bills the customer had been paying before installing the system. At the end of the lease period, the customer may buy the system, extend the lease agreement, or have the system removed from his or her home.

A private firm, SolarCity, is marketing its solar lease program in California, Oregon, and Arizona. SolarCity provides solar power system design, installation, and monitoring services. Its partner, Morgan Stanley, provides the financing for these systems, acting as the tax investor and claiming the federal tax credits and depreciation benefits. SolarCity is considering expanding to other parts of the United States.

SolarCity offers many lease options. Homeowners can choose a no-money down option or make a down payment; the higher the down-payment, the lower the monthly lease payments. In addition to the cost of the system itself, the lease payment covers the cost of system monitoring, maintenance, and repair, including an inverter replacement if necessary. SolarCity guarantees a minimum level of electricity output (expressed in kwh) of the system as well. The company concentrates on areas where high prevailing electricity rates and attractive incentives allow most customers to achieve savings from the start of the lease. Pricing and deal structure vary based on local market conditions. For example, a 3. 2 kilowatt PV system in northern California may cost the homeowner $ 83/month and may reduce his utility bill by $ 125/month, for a net savings of $ 42/month. In Arizona, where utility rebates are larger but local utility rates are lower, a customer might pay only $ 43/month for the same system, reducing utility bills by $ 53/month for a net savings of $ 10/month. SolarCity also varies the term length and annual escalator as local conditions dictate. In California and Arizona, leases usually run for 15 years with rate increases of 3. 5% per year, whereas Oregon leases run for 10 years and with no escalator.

If the homeowner moves within the lease period, he or she can:

1. buy out the lease and include the system as part of the home being sold;

2. move the system to the new home (at the homeowner's expense) if it is in the same utility district; or

3. transfer the lease obligation to the incoming owner, as long as the new homeowner is interested and meets SolarCity's credit requirements.

If a homeowner chooses to buy out the lease prior to the end of the lease term, SolarCity calculates a "make-whole" payment that it charges the homeowner, in addition to the fair market value of the system. The make-whole payment captures the return on the investment SolarCity and Morgan Stanley would have earned if the PV system had remained in place for the originally agreed upon 15-year term of the lease. As part of the lease, SolarCity must be added to the homeowner's insurance policy. The company reports that most customers have sufficient personal property coverage under their existing homeowner's policy so that the panels can be insured at no additional cost. The lease program started in March 2008 and leases now constitute the majority of the company's residential revenues. Since the federal investment tax credit has been reauthorized at 30% through the end of 2016, the company expects to install well over 10 MW of leased systems in 2009. Further information on the company and its programs can be found at www. solarcity. com.

ENERGY FINANCING DISTRICTS

Colorado law permits Clean Energy Finance Districts to be created to finance renewable energy and energy efficiency measures. Participating districts may create funds using bonds, financing agreements, grants, and revenue from financed projects, among other things. Property owners in a district may execute a contract for a loan, which is payable at intervals established in the special assessment. All moneys collected from the assessments for any improvement may only be used to fund reserve accounts for the payment of bonds issued until the principal and interest are paid for all of the bonds. The program can be used to finance a wide variety of renewable energy technologies, including solar water heating, PV and solar thermal electric, wind, biomass, geothermal heat pumps, daylighting, small hydroelectric, ethanol, biodiesel, and fuel cells using renewable fuels. Further information about Colorado's law is available at www. colorado. gov/energy/index. php?/utilities/clean-energy-development-authority.

Legislation enacted in Ohio in 2009 (HB 1) expands the state's existing special improvement district law to authorize municipalities and townships to create special energy improvement districts that offer property owners financing to install PV or solar thermal systems on real property. Municipalities and townships interested in creating such districts and providing financing for property owners must circulate a petition for eligible property owners to opt in to the program. Interested and eligible property owners must provide their solar -energy project plans as part of the petition. Once the petition is complete and property owners have opted in, the municipality must approve a special energy improvement district via ordinance or resolution. A special improvement district board of directors must be created (if one does not already exist) to implement the program. Each local municipality must determine specific eligibility criteria, the maximum loan amount and interest rates, and other loan terms. Unlike regular special improvement districts in Ohio, a special energy improvement district does not have to be comprised of contiguous properties.

Vermont has a similar law, adopted in 2009, which is available at www. leg. state. vt. us/docs/2010/acts/act045. pdf.

FINANCING THROUGH PROPERTY TAXES

The structure of the property tax assessment model has a municipality loaning homeowners the money required to install renewable energy systems or make energy efficiency investments. The municipality gets the money for the program by issuing long-term bonds or tapping into the general fund. The municipality then makes loans to homeowners to finance the installation of their systems.

These loans are repaid over a long period of time (e. g. , 20 years) via a special property tax assessment. The homeowner pays a modest administration fee upfront, eliminating the up-front cost barrier issue. If the homeowner sells the home before the loan is repaid, the system and the associated special property tax remain with the house. This addresses the second barrier: The homeowner only pays for (and benefits from) the system while living in the house. When the home is sold, the new homeowner assumes the costs (and the benefits) of the system until the property tax assessment is paid off or they move.

California was the first state to enact legislation permitting this type of financing. The California legislation (Cal. Streets and Highways Code Sec. 5898. 20-5898. 32) is available at http: //www. leginfo. ca. gov/cgi-bin/displaycode?section=shc&group=05001-06000&file=5898. 20-5898. 32.

In November 2007, the Berkeley City Council took advantage of this law to finance residential PV systems as well as energy efficiency improvements through this system of special property taxes. The Financing Initiative for Renewable and Solar Technologies allows participating property owners to finance the up-front cost of installing energy improvements, including PV systems, with special, semi-annual tax payments. The goal of the program is to address the up-front financial burden associated with installing residential PV systems and other large-scale energy improvements. The city issued long-term bonds to finance the total up-front cost of the systems. The debt service on the bonds and any administrative fees is paid from a special assessment added to the homeowner's property tax bill over a 20-year period. The city has a lien on the property that it can exercise if the homeowner fails to pay the special assessment. As property taxes have priority over other debts associated with the home, including the mortgage, these special tax liens should make the debt the city issues attractive to investors.

Illinois, Maryland, North Carolina, Texas, and Virginia have adopted similar enabling legislation.  Illinois' legislation (PA 96-481, adopted this session) simply provides that “a municipality may enter into voluntary agreements with the owners of property within the municipality to provide for contractual assessments to finance the installation of distributed generation renewable energy sources or energy efficiency improvements that are permanently fixed to real property. ”

FINANCE AUTHORITY BONDING

Idaho

Legislation adopted in 2005 (Idaho Code § 67-8901 et seq. ) allows the Idaho Energy Resources Authority to issue bonds to finance renewable energy projects developed in the state by electric utilities and non-utility generators.  For the purposes of this program, renewable energy includes biomass, fuel cells, geothermal energy, waste heat, cogeneration, solar energy, water power, and wind.

Illinois

The law (Public Act 96-0103, adopted this year) allows the Illinois Finance Authority to issue tax-exempt bonds for renewable energy projects in Illinois. The funding is available to commercial and non-profit entities as long as their projects provide a significant public benefit for state residents. Renewable energy projects can include those that use wind, solar thermal energy, PV, biodiesel, certain types of biomass, hydropower, and Illinois-produced landfill gas. In addition, transmission lines and associated equipment used to transfer electricity created by renewable energy, as well as renewable energy storage technologies, are eligible for financing.

New Mexico

The Energy Efficiency & Renewable Bonding Act authorizes the New Mexico Finance Authority to issue up to $ 20 million in bonds backed by the state's Gross Receipts Tax to make loans to state agencies, universities, and public schools to fund energy efficiency and renewable energy renovations at existing facilities. Among the types of renewable energy projects that can be financed under the act are solar space and water heating, PVs, wind, biomass, fuel cells, cogeneration, and daylighting. Under the program 90% of the expected energy utility bill savings are "captured" from the participating agencies' budgets to pay debt service on the bond, thereby providing incentive for the agencies to improve their energy efficiency and to keep the General Fund whole.  

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