Berkeley First – Financing Solar Energy through Property Taxes by

Note: I am not a tax professional by any means. Please consult one before acting on, or really, even listening to, anything I have to say.

Update 2/10/09:  Looks like the Berkeley First program got the attention it needs on the Federal Level to make it scale.  Check the bottom of this post.

San Francisco and Berkeley both have groundbreaking solar incentive programs. San Francisco went first with a cash incentive for installing solar energy… something I followed extremely closely over it’s gestation. Berkeley decided to take another route and to finance residential solar installs using additions to the homes’ property tax bill over 20 years. I didn’t follow this as closely because it seemed to me that it was doomed from the start for one simple reason: It didn’t jibe with the federal investment tax credit.

The tax credit, or ITC, can only be applied if the solar financing is “at risk.” Financing through an addition to property taxes – an addition that transfers with the property when it is sold, didn’t sound “at risk.” (again, I’m no tax attorney.)  I wasn’t sure about this, but it boggled my mind that seemingly, this was working it’s way through city government all the way without being addressed.

I did come across some diagrams trying to show it was still a valid option because the interest rate was lower and that counteracted the $2000 credit, but last I heard the interest rate was quite high, and the federal tax incentive has increased dramatically, making it impossible to overcome even if there were no interest.

It looks like this is further confirmed by a recent call to action on Vote Solar requesting that its readers pressure congress to tweak the ITC with these proposed changes:

First, eliminate the barrier to utilizing the Federal Energy Tax Credit. The federal government now provides a 30% Energy Tax Credit for the installation of specified energy projects. Expenditures are not considered eligible for purposes of calculating the Energy Tax Credit if the related improvements were financed by “subsidized energy financing” or tax‐exempt bonds. Legislation can clarify that this type of renewable and energy efficiency financing program does not adversely impact the availability of the Energy Tax Credit regardless of its structure.

Second, allow the use of federally tax exempt bonds to finance the program. The revenue bonds supporting this program cannot take advantage of the federal tax exemption normally available to local government because the renewable energy and energy efficiency projects financed by bonds are made to private property and the bonds are payable from private loan payments made by participating property owners. This makes the program much less cost‐effective for property owners. Given the requirement that we quickly address energy security and climate change, Congress can amend the code to recognize that bonds issued to finance renewable energy and energy efficiency improvements to private property are governmental bonds the interest on which may be tax‐exempt.

If they can get this thing to play nice with the ITC, it could have a drastic positive impact on the number of solar installations the US.  Please visit Vote Solar to contact your representative when you have some free time.  They make it very easy for you to do.