How the Sequester will Impact the Home Energy Efficiency Industry

By Johnny Ritzo

There has been considerable speculation about how the mandatory budget cuts, known as the sequester, will impact key government functions beginning March 1, 2013.  Primary concern has focused on large-ticket items such as national defense, education, and transportation.  But what about the Home Performance Industry?  The White House has made broad claims that the sequester will hurt the Renewable Energy Industry, but details regarding home energy efficiency, in particular, have been sparse.

The hardest-hit agencies in the energy efficiency sector will be the Department of Energy (DOE) and the Environmental Protection Agency (EPA).  Under the Budget Control Act of 2011, such non-exempt federal departments, such as the DOE and EPA, are required to trim roughly 8.2% from their budgets during FY2013.  Lacking the authority to prioritize particular goals, the budget cuts will apply evenly across the DOE and EPA’s programs and projects alike.  The following is a summary of the anticipated cuts and their impact.

Less Focus on Scientific Innovation: Both the DOE and the EPA fund significant grants for scientific research in energy efficiency, solar energy, battery storage, and other critical areas of the Renewable Energy Industry.  In addition to reducing available grants, both organizations will have to downsize research labs and operations.

Cuts to Weatherization Programs: The DOE is expected to reduce contributions to state programs providing weatherization services to low-income families.  Department experts project that the budget cuts will lead to 1,000 fewer homes being retrofitted during FY2013.  Another significant result is that up to 1,200 weatherization professionals could lose their jobs, according to the DOE.

Cuts to HPwES Programs:  Both the DOE and EPA fund state programs providing incentives for home energy retrofits.  In his recent letter to the Senate Appropriations Committee, Steven Chu, Secretary of Energy, contended that the sequester could threaten the ongoing viability of state retrofit programs and training centers.  Details on the impact to state programs, however, were not provided.

Fewer Energy Star Certified Products:  The EPA predicts the budget cuts will hinder its ability to maintain its Energy Star product specifications.  Currently covering more than 65 categories of goods and appliances, the EPA will no longer be able to label as many products, which could lead to slow downs in energy-efficient electronics, appliances and home heating and cooling systems.

Decreased Involvement with Industry:  The EPA estimates it will have to terminate partnerships with several “energy-intensive industrial sectors” and will not be able to publish as many Energy Efficiency Guides.

Less Software Development and Support: The EPA created a software tool called “Portfolio Manager,” which enables users to track energy and water usage across a portfolio of buildings.  EPA officials are concerned the cuts may jeopardize planned software upgrades as well as its ability to provide ongoing support for its users, which include several major cities, states, and the federal government.

In conclusion, the EPA and DOE are scrambling to determine the exact impact of the budget sequester scheduled to take place this Friday.  Originally intended to pressure Congress into enacting comprehensive budget reform, the sequester poses harsh consequences to many industries, including Home Performance.  Lacking the ability to prioritize certain projects, such as Home Performance with Energy Star, the DOE and EPA need to trim spending across the board.  The impact of some cuts are fairly obvious, like decreased support for Portfolio Manager, whereas others will take quite some time to shake out.

One thing seems fairly clear, though: The Home Performance Industry needs to take steps to reduce its reliance on federal and state programs beginning immediately.  The introduction of cheap natural gas, coupled with sensationalized stories of waste, has placed the industry on the back burner.  Political support for large subsidies and incentives seems very unlikely moving forward.  So, from this position, we must pull ourselves up by the bootstraps and begin to market the many benefits of Home Performance: comfort, sustainability, monthly savings, indoor air quality, and more.  These benefits more than justify the cost of a home energy retrofit, so it’s our job to begin spreading the word of home energy efficiency through collaborative marketing tactics.

Ski Condos and Multi-Family Rebates

By Johnny Ritzo

In keeping with tradition, all lifts at the Sugarloaf ski area are on wind hold this morning. Temperatures have been hovering around 10 degrees Fahrenheit with wind gusts of 100 mph at the top of the mountain.

Yes, we’re still stuck in the condo this lovely New Years Eve day, but this year we’re actually cozy and comfortable.  That’s because my father-in-law had a revelation and asked the condo association if he could be the Guinea pig and get an energy audit.   After consulting with DeWitt Kimball of Complete Home Evaluation Services over the summer, it was apparent there were large gains to be made.  Per the audit report, Upright Frameworks did some air sealing and insulated the attic.  As a result, we’re free and clear of ice dams this winter.

Meanwhile, the rest of the ski condos in Commons II haven’t made energy upgrades.  Check out the ice dams coming off our neighbor’s roof, which might just impale some small dog scurrying around the parking lot.

Why haven’t more ski condo owners thought about home performance and energy efficiency?  Well, they should.  Maine has a multi-family rebate of up to $1,400 per apartment
or 50% of installed costs, whichever is less.

It’s unclear, though, whether condo associations qualify for the rebate, since individual families own the condos but associations are typically responsible for the building enclosures.  From an efficiency standpoint, it’s important to have continuous insulation around the building shell, which would require all condo owners to get retrofits.  A rebate for the condo association seems like a reasonable way to promote efficiency across all condo units.

Energy Efficiency Financing Part 2: On-Bill Financing

By Johnny Ritzo

On-bill financing refers to a type of loan available to property owners to help pay for the high upfront costs associated with energy efficiency and renewable energy upgrades. Whereas PACE loans are repaid through assessments added to property tax bills, on-bill loans get repaid through charges added to the borrower’s utility bill. Ideally, on-bill loans are structured in such a way that borrowers’ energy savings offset their increased monthly debt obligations.

Utility Involvement and On-Bill Funding Sources

Similar to PACE, on-bill finance programs typically rely on state legislation–either by requiring utilities to contribute funds to the program or, in the alternative, by opening up their billing systems for program use. Due to their unique relationships with customers, the theory goes, utilities are well-positioned to collect loan payments and promote the program benefits.

However, a 2011 ACEE report concludes that utilities often resist participating in on-bill programs, as they don’t want the hassle of dealing with consumer lending laws. A way around these regulations, though, is to have the utility perform the upgrades and add service charges to their customers’ bills. Such tariffs are not considered “loans” and, thus, aren’t subject to state consumer lending laws.

In addition to utility contributions, there are a plethora of other funding sources ranging from the elementary to the sophisticated. On one end of the spectrum, numerous on-bill programs have received ARRA grants to establish revolving loan funds. On the other end, some municipal governments have issued energy bonds to establish loan-loss reserves, which were used to attract private investors to the program. Other funding options include:

• State Rate Payers;
• Private Foundation Grants; and
• Proceeds from Cap and Trade Programs.

What should property owners know about on-bill repayment?

The loan amount and the repayment terms are determined by the estimated monthly savings from the energy retrofit. To determine energy savings, some programs require two energy audits–one to identify energy-saving opportunities and another to validate that the target reductions were indeed met.

Unlike PACE, though, on-bill financing loans are usually unsecured, meaning the borrower doesn’t have to pledge collateral. Since unsecured loans are riskier for lenders, on-bill programs require a more rigorous application process to determine one’s creditworthiness. However, lenders find some comfort in the fact that loan repayment is tied to a utility account, and most customers prioritize paying utility bills to avoid interruptions in their power supply.

Finally, on-bill programs are mixed as to whether loans are transferable, meaning the “loan follows the meter.” Some programs require borrows to assume personal responsibility, so that the entire debt obligation must be repaid at transfer of the property.

Yet others tie the debt obligation to the meter, not the current owner. This option is particularly attractive for owners of rental properties. Although a long-term contract is usually required, landlords can have energy upgrades completed without incurring any upfront costs while the tenants pay for it via their utility bills. If done correctly, the monthly utility costs should be equal to like sized units on the market.  The tenant enjoys the benefits of the upgrade–improved comfort, indoor air quality, etc.– without paying more for heating and cooling than they otherwise would have if they rented a  non-efficient office or apartment.

Energy Efficiency Financing Part 1: PACE Financing

By Johnny Ritzo

High upfront costs are a primary obstacle preventing wide-scale adoption of home energy efficiency improvements. Even though energy retrofits can be sound financial investments, homeowners are hesitant to spend money on purchases they perceive as “discretionary.” To overcome this hurdle, several public/private partnerships have developed low-interest “loans” with creative repayment options whereby the energy savings offset the monthly “loan” obligations. These financial models allow homeowners to enjoy the many benefits of home performance without incurring additional financial burdens.

This 2-part post will explore two types of financial products: PACE financing and on-bill financing. Although neither have dominated the marketplace to date, both could help the energy efficiency industry gain an important foothold in American homes.

Overview of Pace Financing

PACE stands for “Property Assessed Clean Energy.” These programs provide property owners with low-interest “loans” to pay for energy efficiency and renewable energy improvements. The borrower, either a homeowner or a business owner, repays the PACE funds via a special assessment added to his or her property tax bill. Although functionally equivalent to loans, proponents of PACE programs carefully describe the debt obligations as a series of “assessments.”

To compel property owners to pay their taxes along with special assessments, municipalities put a lien on your property until your tax bill is paid in full. Since the local government always takes it’s slice first, tax liens enjoy priority status over other liens–meaning if you don’t pay your taxes, the city or county can foreclose on your property to repay itself in full before any of your other creditors.

The practice of using special assessments to pay for municipal projects, like new sewers and sidewalks, is nothing new and dates back to the 1700’s. However, PACE programs are unique in that the assessments pay for projects completed on private property–not public property. State law governs what can and cannot be included in property taxes, so enabling legislation must be set in place prior to establishing a PACE program and collecting assessments.

How are PACE Programs Funded?

A common method of funding is for a city or county to issue bonds. Most often the bond proceeds are loaned out to homeowners or business owners at an interest rate slightly higher than the bond rate. The resident borrowers repay the “loan” via their tax bills, the proceeds of which are used by the municipality to pay off the bond at its date of maturity. As for the difference in interest rates, that goes to the municipality to cover administrative costs associated with the PACE program.

A second option for funding a PACE program, which is harder to do nowadays, is to apply for a grant. For example, many cities and counties received grants under the American Recovery and Reinvestment Act to establish revolving loan funds. Since the ARRA dollars had to be spent as part of the stimulus package, this option is not as widely available as it was a few years back.

A third option is for a city or county to work with third-party lenders. Some banks will loan directly to property owners participating in PACE programs, yet others require the municipality to act as an intermediary: The city or county borrows the money from the bank and loans it back out to property owners. Even though the town may charge an administrative fee, homeowners still benefit because municipalities typically have access to lower interest rates than do homeowners.

What should property owners know about PACE?

Beyond low-interest rates and convenient repayment options, PACE loans are particularly attractive for property owners who are on a tight budget. Since the loans are not dependent upon income, but rather upon the property’s assessed value, you don’t have to be a member of the 1% to qualify–just a financially responsible person. And, if done correctly, the value of the energy savings should offset the cost of the assessments.

PACE loans are also attractive for homeowners who don’t know how long they’ll live in a particular house, since the loans are secured by the improved property and “run with the land.” This means that if you sell your home, the purchaser is responsible for paying the PACE assessments. Note, however, that PACE liens are an encumbrance on your property, which may make it more difficult to sell your home in the future.

FHFA and the Future of PACE Financing

As mentioned earlier, PACE loans have not been widely implemented (with the exception of California), despite being an attractive option for financing home energy retrofits. So, why is this? Over the past few years, the Federal Housing Finance Authority (FHFA) has prohibited the Federal Home Loan Banks, two of which are Fannie Mae and Freddie Mac, from purchasing mortgages encumbered by PACE liens. Since cities and towns don’t want to sacrifice borrowers’ ability to obtain loans for the purchase of new homes, many jurisdictions put PACE on the back burner.

To really understand what happened, it may be helpful to examine what the FHFA does and its relationship to Fannie Mae and Freddie Mac. The FHFA was created in 2008 pursuant to the Housing and Economic Recovery Act, and was tasked with regulating the Federal Home Loan Banks, two of which are Fannie and Freddie. Acting as their watchdog, the FHFA keeps an eye on these Fannie and Freddie, since they play such an important role in the economy: They purchase home mortgage loans from lenders, so the lenders can re-loan the funds to more home buyers.

Fannie and Freddie then bundle their newly purchased mortgages and sell interests in the revenue streams, which are known as “mortgage backed securities.” As part of the process, though, the banks make some level of guarantee that the loans will be repaid. You may recall that some states enacted legislation granting PACE liens first priority status, which made investors feel more confident they’d get their money back if individual property owners defaulted on their payments. The unintended consequence, though, was that it made the mortgages held by Fannie and Freddie more risky, because if there was a foreclosure, the PACE lender would get repaid in full before Fannie or Freddie recouped anything. Obviously, the FHFA was not happy with this arrangement, so it put the kibosh on Fannie and Freddie buying mortgages encumbered by a PACE lien.

In response to the FHFA’s directive, numerous states filed lawsuits attacking both the FHFA’s decision-making process as well as the merits of its position. Most of these cases have been dismissed with the exception of California. In this case, California claimed that the FHFA, in making its directive to Fannie and Freddie, acted as a regulator–and not a conservator–and, thus, violated the Administrative Procedures Act (APA) by not using a notice and comment period.

The United States District Court for the Northern District of California, whose decision is being appealed to the US Court of Appeals for the 9th Circuit, required the FHFA to deliver a final rule by May 2013 after inviting comments for a period of 45 days. Although complying with the Notice of Proposed Rulemaking (NPR) process, the FHFA is challenging whether the District Court can force it to establish a formal rule subject to judicial review.

So, where does the litigation leave us? The FHFA is currently exploring risk mitigation measures that would allow PACE programs to proceed, although these measures may prove to be so cumbersome as to preclude adoption of PACE. If and when the FHFA issues its final rule, litigants will be able to challenge whether the FHFA acted arbitrarily or capriciously, given the record and comments. Another round of litigation is highly likely.

Meanwhile, Nan Hayworth (R-NY) sponsored the PACE Assessment Protection Act of 2011 and has been joined by 22 Republicans and 31 Democrats in the House of Representatives. This bill would preclude the FHFA from “adopting policies that contravene established State and local property assessed clean energy laws.”  However, experts are forecasting that this bill has little, if any, chance of passing, given the legislative climate in Washington.  Thus, we’ll most likely have to wait and see what the FHFA’s final rule entails and the ensuing litigation.

Should I wait to buy solar?

By Johnny Ritzo

We’ve seen the price of solar panels plummet by nearly 80% over the past few years.  Now if you’re a homeowner, you’re probably wondering if you should wait for the price to go down even further, assuming, of course, you want to purchase your equipment outright instead of entering into a solar lease or power purchase agreement.  The following are four factors that may lead to an increase in the price of solar panels over the next few years.  But, keep in mind that solar panels represent only about 20-30% of the solar system, with the rest of the cost represented by the “balance of the system” — inverters, controls, rack mounts, monitoring devices, etc.

Reason 1: China

China has been trying to buy you solar panels.  Well sort of.  More accurately, the Chinese Government has been subsidizing its solar panel manufacturers, allowing them to sell panels in the United States below market price.  This practice, known as “dumping,” drives the cost of panels down significantly as it causes US-based manufacturers to reduce their prices to remain competitive.  To protect American solar panel manufacturers, the Commerce Department recently announced it’s going to impose a tariff of 24 to 36% on solar panels made in China.

Beyond providing direct subsidies, Chinese banks also over-invested in solar manufacturing at the encouragement of Beijing.   This lead to overcapacity, which further drove down the price of solar panels.  Now these manufacturers are having difficulty repaying their debts, and it’s anticipated that a majority of them will go bankrupt, further decreasing the supply of Chinese panels.

Reason 2: The Price of Polysilicon may Stabilize

Courtesy of Energy.gov

Polysilicon–a material used to make solar wafers–has dropped dramatically over the past few years, due, in large part, to oversupply. Some experts expect polysilicon prices to stabilize in the coming months, so long as manufacturers can limit production.  On the other hand, though, tariffs against Chinese-made panels could also restrict demand for polysilicon, which would lead to an even further decline in the price of polysilicon.  Thus, this factor is a bit uncertain but worth monitoring.

Reason 3: Tax Credits

The Solar Investment Tax Credit (ITC) is set to expire at the end of 2016.  This incentive provides a credit equal to 30% of the cost of the solar installation.  The cap on the credit is $500 per .5 kW of power capacity, which on average is roughly $6,000 per residential project.  Sure, this credit is going to be around for another 3 years, and may be extended by Congress, but it’s not going to be around forever.  So, if you’re thinking of adding a solar panel array to your home, make sure you do it before this credit expires.

Reason 4:  Net Metering

Net metering is becoming an increasingly contentious issue among utilities. This important policy requires utilities to credit a consumer’s account for excess electricity that the consumer puts back onto the grid from his/her renewable energy system.  For example, if you install photovoltaic (PV) panels on your home, and you produce more energy than you consume at a given time, you can “sell” that excess power back to the grid.

Several states are nearing the regulatory limit as to the number of PV systems that qualify for net metering.  Utilities are fiercely fighting efforts to extend the number of qualifying systems, arguing that the cost of net metering is simply being passed along to customers who cannot afford to purchase solar.  Should utilities prevail, you might not be afforded the opportunity to net the solar energy you produce against your electric bill.  Consequently, this change in policy would lengthen the period it takes for you to payoff your solar array, making it a less attractive investment.

California’s Emerging Carbon Market – AB32

By Johnny Ritzo

California’s Carbon Cap-and-Trade Program 

This November the state of California will hold its first carbon auction under its recently launched cap-and-trade program.  As part of the Global Warming Solutions Act of 2006 (a.k.a. AB32), this program imposes limits on the amount of carbon that certain businesses may emit (i.e. electric utilities, large industrial facilities, distributors of transportation, natural gas and oil refineries).  By targeting the worst polluters, California hopes to reduce its greenhouse gas emissions to 1990 levels by the year 2020.

A basic description of California’s carbon market is as follows:

• At the beginning of the cap-and-trade program, covered businesses (i.e. the heavy polluters) are given free allowances, which are rights to emit a certain tonnage of CO2.
• Firms then have one year to reform their practices and start cutting emissions.
• Next, the compliance period begins, during which covered entities must periodically check in with the state and provide enough allowances and credits to cover their carbon emissions, or face a penalty.
• Firms with unused allowances may sell them to other businesses who require extra allowances to cover their emissions for the AB32 compliance period.

RGGI Member States

Significance

Cap-and-trade systems have been around since the 1970s, but their popularity has increased in recent years.  For example, several Northeastern and Mid-Atlantic states formed the Regional Greenhouse Gas Initiative (RGGI) in 2008.  This program caps power plant C02 emissions, and allows the covered power generators to trade allowances and credits to meet individual requirements.

Going one step further than RGGI, California’s AB32 program is significant because it extends carbon restrictions not just to power plants, but to large industrial facilities and transportation distributors as well.  By extending the scope of its carbon cap, and covering more polluters, the Golden State hopes to reduce its carbon emissions by 15% over the next 8 years.

Controversy Runs Deep in California

The primary point of contention surrounding AB32 in California is whether or not capping carbon emissions will have a material, negative impact on the state’s fragile economy.  The argument takes a few different forms:

• Heavy-handed regulation will increase the cost of doing business in California, which could cause firms to become less profitable, prompt businesses to pass on the increased costs to consumers, or motivate companies to move out of state.
• Others predict there will be a shortage carbon credits, because California has been too restrictive with the types of projects that can qualify as carbon offsets.  The crux of the argument is that operating costs will increase even more than originally expected for covered entities, thus exacerbating the projected results outlined above.

Yet other opponents are taking aim at how the cap-and-trade revenues will be spent.  The current program is expected to earn California roughly $500 million to $1 billion next year.  Rather than leverage the proceeds by investing in efficiency programs (as do RGGI states), the money will flow to the General Fund to help offset California’s projected budget deficit of $15.7 billion.  Such allocation of funds, some believe, will undermine trust in the Government and hinder its ability to accomplish other environmental initiatives in the future.

In Defense of AB32

California’s cap-and-trade program is worth preserving for two primary reasons: (1) We need to make meaningful cuts in our carbon emissions quickly, and AB32 will make an impact next year; and (2) the cap and trade program will bring about positive change with as little economic disruption as possible.

Let’s start with looking at the timing issue.   Here are a few numbers from Bill McKibben’s recent Rolling Stone article that will blow your mind:

2° Celsius: The amount average temperatures could rise yet still be safe for the world’s populations (although many believe this number is too high).

0.8° Celsius: The increase in average temperature that has already occurred since 1880, which has caused more damage than expected (i.e. melting ice caps, acidification of oceans, increase in floods).  This number is also important because if we stopped emitting CO2 today, the earth’s atmosphere would continue to warm another 0.8° celsius before plateauing.  So, for budgeting purposes, we stand at 1.6° celsius.

565 Gigatons: The amount of carbon dioxide that may be emitted while staying below a 2° celsius threshold.

2,795 Gigatons: The amount of carbon contained in oil and coal reserves currently owned by large oil companies (and a few countries), which are listed as assets on their balance sheets.  As McKibben explains, this number represents “the fossil fuels we’re currently planning to burn.”

So, if we follow our “business as usual” outlook, we’re going to blast past the 2° celsius threshold in short order.  We need someone to lead us now, to tell us what to do, and to hold us responsible when we don’t listen.  California should be applauded for stepping up to fill this role when others are unwilling for fear of economic consequences.   It’s crazy to speak of repealing AB32 when it represents a viable, partial solution that is set to kick off next month.  Simply put, we’re out of time to be looking around for alternatives.

But I’ll go one step further and stand behind AB32 as a decent solution to mitigating Climate Change, even though a carbon market for Big Business represents only part of the answer.  First, cap-and-trade programs are considered to be the most “cost effective” way to curtail carbon emissions because they provide a flexible framework for identifying those persons best suited to make gains in efficiency.  Some firms are agile and can revise their business practices/processes without undue hardship.  Yet, others are heavily dependent on fossil fuels and antiquated procedures, so it’s cheaper for them to simply stay the course and pay other businesses to emit less.  At the end of the day, though, we don’t really care who emits, just as long as the total tonnage of CO2 emissions goes down.  So, in a sense, the market approach provides greater autonomy to firms making the economic decision to continue polluting at the same level or not.

The second economic benefit of cap-and-trade programs is that they create a fertile environment for innovation.  An opportunity for increased profits exists where the cost of reducing emissions is less than the market price of an allowance.  So, in addition to revenues from a firm’s primary business (i.e. refining oil), it can open a second channel of revenue from selling allowances.  This opportunity for double profit is believed to create a meaningful incentive to create efficient processes and technologies that would not otherwise exist without the carbon market.

What are some alternatives to AB32’s cap-and-trade carbon market?  One option is for California to simply require all businesses to comply with CO2 limits without being able to purchase additional allowances or credits to cover.  Obviously, this would be a less flexible approach and would cripple less agile firms.  Alternatively, California could levy a carbon tax across the board.  Yes, this would likely be easier to administer, but may not create as great an incentive for innovation as cap-and-trade.  The incentive to become more efficient under a carbon tax is to avoid being taxed, whereas with cap-and-trade, efficiency is motivated by the opportunity to sell excess allowances to the highest bidder.

Final Thoughts

Sure, there are going to be some snafus along the way with AB32, but I feel optimistic that California has created an atmosphere for innovation.  This carbon market may represent the “heavy hand” of government to some, but it’s time businesses get serious about cutting carbon emissions.  The free market has not yet produced the miracle innovation allowing us to maintain our status quo while stabilizing climate change.  Our time is up.  We need to act now.  Cap-and-trade programs, at the end of the day, are a step in the right direction.  However, they’re not everything: We need a blend of standards and incentives to address other GHG contributors.

Solar Contracting Just for Electricians?

By Johnny Ritzo

Introduction to Massachusetts Solar Contractors

A recent Massachusetts Superior Court case raised an interesting question with regard to solar installations: Should electricians be the only trade licensed to install rooftop photovoltaic systems?  Although the resolution of this case hinged on a straightforward statutory interpretation, it got me thinking about who ought to install solar and what tasks should properly be considered “solar installation”?  In the interest of safety and consumer protection, what special skills are required?  Is one trade better suited than the rest?  First, though, let’s take a look at the summary judgment decision.

Carroll v. Board of State Examiners of Electricians

The conflict began in 2009 when the Massachusetts Board of State Examiners of Electricians (BSEE) issued an advisory ruling essentially stating that an electrician’s license was required for all aspects of installing PV systems.  In support of its position, the BSEE cited General Laws c. 141, §1, which requires an electrician’s license to install wires to be used to carry electricity during the power generation process.  Thereafter, the BSEE began investigating claims and initiating charges against general contractors who advertised and contracted for installing rooftop PV solar arrays.

John Adams Court House, Boston, MA
Courtesy of Mass.gov

In response to the investigations and charges, six general contractors filed suit seeking a declaratory judgement that the BSEE didn’t have authority to require an electrician’s license for all aspects of the solar install process.  The plaintiffs cited the second paragraph of GL c. 141, §1a, which exempts a general contractor when s/he uses a licensed subcontractor for all “electrical” work.   Seems simple enough, right?

Granting summary judgement in favor of the plaintiffs, the court held that the BSEE lacked jurisdiction to grant electricians a monopoly over the installation of PV systems.  The court reasoned that since both parties stipulated that licensed electricians must be used for hardwiring PV systems, general contractors qualified for the statutory exception.  The court further reasoned that by including an exception in GL c. 141, §1, the Massachusetts Legislature never intended to grant broad power to the BSEE to regulate non-electrical tasks, even when the overall project may be deemed “electrical” in nature.

Although the court stopped short of identifying those tasks requiring an electrician’s license, it did suggest that a license is required when a person “connects wires” for the generation of electricity using his or her “own hands.” Next session, though, the Massachusetts Legislature will consider creating a solar contractor’s license that would cover all aspects of the installation process, thereby superseding the Carroll decision.

Power Grab by the BSEE?

After reading the summary judgment opinion, I can’t help but feel that the BSEE unfairly tried to create a monopoly for electricians by excluding general contractors and solar contractors.  GL c. 141, §1 seems quite clear that a contractor does not run afoul of the law when s/he uses a licensed subcontractor to perform “electrical” work, which, in this case, would be hard wiring the panels, inverters, etc.  This basic exception makes good sense, as it promotes safety but also recognizes that general contractors can play a valuable role in helping homeowners address energy usage and conservation.

With regard to safety, it makes no sense to require an electrician’s license for tasks that don’t involve electricity, such as evaluating a roof to determine whether it’s structurally sound enough for solar panels.  In this instance, homeowners ought to be protected by requiring engineering expertise instead.

Beyond misguided safety considerations, the BSEE’s position ignores the important role a general contractor should play in addressing home energy consumption.  It’s critical that someone knowledgeable of building systems lead homeowners through the maze of energy-related decisions: Do I address energy efficiency before renewable energy?  What approach is the most cost-effective?  What about sustainability, comfort, or durability?  Available financing options and payback periods?

What constitutes “solar” work?

Next session, the Massachusetts Legislature will consider enacting a law that would establish a solar contractor’s license, rather than indirectly relying on licensing requirements for general contractors and electricians.  It will be interesting to see what tasks the Legislature places within the bailiwick of solar contractors versus those tasks it leaves available to other trades, such as builders and electricians.  In other words, what tasks are uniquely “solar” and require special training?

At one end of the spectrum, it’s probably too far of a stretch to say that energy auditing is “solar” work, although it’s an important first step.  But what about sizing a PV system, evaluating shading or consulting on available rebates?  Share your thoughts in the comments below as to those jobs you think should require a solar contractor’s license, if any.

Funding Local Energy Efficiency Initiatives

By Johnny Ritzo

Last month, Eric Mackres and Sara Hayes of the American Council for an Energy-Efficient Economy published an extensive report detailing the various funding sources used by local energy efficiency programs.  I definitely recommend reading  Keeping it in the Community: Sustainable Funding for Local Energy Efficiency Initiatives. But, if you don’t have time, I thought you should at least know what options are out there if you’re interested in starting an energy efficiency program in your community.

So, here’s a basic summary of the types of funding sources–both seed and recurring:

Grants

In this context, a grant is an award from the Federal Government to a state, county or city.  Although a grant doesn’t have to be repaid, there is usually a rigorous application process.  The most significant grant in the home performance category is the Energy Efficiency Conservation and Block Grant (EECBG), which was part of the American and Recovery Reinvestment Act of 2009.  EECBG funds distributed to large cities and counties have totalled more than $2.7 billion to date.  Further, these grants have funded a wide range of activities–from program planning to seeding revolving loan funds.

Bonds

A bond is a type of debt instrument whereby investors loan money to local governments for a certain period of time, and in return, are repaid the loan principal with interest.  Typically, local governments use their general funds (i.e. taxes) to pay the bond at the date of maturity.  Through the Qualified Energy Conservation Bonds tax credit, the Federal Government encourages local governments to issue bonds to fund efficiency programs by giving them a tax credit that offsets the interest on the bond.

Taxes

The most common practice is for a state or local government to impose a tax on certain energy-related activities, such as consuming energy or emitting carbon dioxide, and use the revenue to pay for efficiency programing.  However, Mackres and Hayes note that some towns are looking beyond “energy-related” activities and are considering taxing casinos as a way to pay for efficiency programs.

Fees

Communities may impose fees on waste, recycling, water, and rights-of-way, and like taxes, commit the revenue to energy efficiency initiatives.   The most popular fees, as noted by Mackres and Hayes, are franchise fees and systems benefit charges.

A “franchise fee” is paid by a private company to a local government in exchange for its use of a public-right of way or other type of infrastructure in conducting its business.

A “systems benefit charge” is when a utility adds a fee to a customer’s gas or electric bill.  There are a few different arrangements with regard to systems benefit charges.  Some investor-owned utilities partner with local governments to offer energy efficiency programs in a collaborative venture.  On the other hand, some utilities simply give the proceeds derived from the systems benefit charge to local governments who in turn establish an efficiency trust to be administered by a 3rd party.

Benefit Districts

We’re all well aware that municipalities and counties tax residents and use the revenues to pay for things like police departments, sewer, street lighting and the like.  Revenues from municipal taxes are usually applied to the city or county as a whole–not to particular neighborhoods.

But, what happens when a particular neighborhood wants to do a special project or offer an additional service?   Many states have enacted enabling legislation that allows property owners to band together and collect fees, so long as revenues stay within the neighborhood, which is called a benefit district.  Most often funds derived from a benefit district go to things like removing graffiti or cleaning streets.

With regard to energy efficiency services, though, communities have created what’s called an “ecodistrict,” which is a type of benefit district.  The fees collected from property owners are used to set target goals for energy reduction, help pay for energy efficiency upgrades, and/or track performance across the district.

Conclusion

Mackres and Hayes did a wonderful job aggregating and explaining all of the funding options used for local energy efficiency initiatives.  It’s important to keep these options in mind when you think about what you can do in your town or community to improve our housing stock, reduce greenhouse gasses, and increase our energy security.  Feel free to share your thoughts in the comments below!

Imposing Tariffs on Chinese Solar Manufacturers

By Johnny Ritzo

Last week the United States Department of Commerce (DOC) determined that Chinese manufacturers were unfairly selling solar panels below market value in the US.  This practice, known as “dumping,” violates the World Trade Organization’s rules governing international trade.

As a result, the US will now impose a 31% tariff (higher in some cases) on solar cells manufactured in China and exported to the US.  The duty does not apply to panels assembled in China–just the cells, which are the basic “building blocks” of panels.  As the Los Angeles Times points out, Chinese firms can simply manufacture the cells in surrounding countries and assemble them in China to avoid the tariff.

The DOC’s action against China is controversial, since it will have a mixed impact on the US solar market.  On one hand, the DOC wants to curb the closure of US manufacturing plants, which has been happening at an alarming rate in recent years.

Courtesy of Congressional Research Service

On the other hand, solar installers argue that the tariff will hurt the solar market, as it will make panels more expensive for homeowners and business.  The solar industry has experienced tremendous growth in recent years due, in part, to a 30% federal tax credit and dwindling panel prices.  As the price of installing solar becomes more affordable, the more sales and installation jobs we stand to gain.

Courtesy of Congressional Research Service

Is there reason to prefer solar manufacturing jobs to solar installation and sales jobs?  Should we be concerned if the tariff reduces the overall number of panels installed in the US?  How do we balance the environmental consequences of fewer solar installations? Energy security?  Share your thoughts in the comments below.

Interesting sources for further reading:

http://www.fas.org/sgp/crs/misc/R42509.pdf (in-depth report covering industry trends written by the Congressional Research Service)

http://articles.latimes.com/2012/may/18/business/la-fi-china-solar-dumping-20120518 (LA Times article providing solid overview of the recent DOC decision)

http://info.ussolarinstitute.com/blog/bid/79841/What-a-US-China-Solar-War-Means-for-Your-Solar-Installation-Career (Industry analysis of what DOC decision means for solar installers)

Solar Financing Models

By Johnny Ritzo

Previous posts on this blog have dealt with financing energy retrofit projects.  As a general rule, residential efficiency is cheaper to achieve than installing renewable energy systems.  And it’s important to remember that saving energy is just as good as generating energy from renewable sources.

But, if you’ve already made energy efficient upgrades, you might consider looking at installing a solar array.  There are several interesting financing options available, including solar leasing, power purchase agreements and loans.  The following is a brief overview of each model and the pros and cons associated with each.

Solar Leasing

A solar lease is a contract whereby a homeowner (the lessee) rents a solar system–either a photovoltaic system or solar thermal unit–from a third party (the lessor).  The lessor is responsible for installing the solar array and maintaining it over the duration of the lease period–typically 15 to 20 years.  In exchange for making the monthly lease payments, the homeowner/lessee gets all the clean, solar energy produced from the system.

The primary benefit of leasing is that it requires little or no money down.  This means you don’t have to prepay for solar energy that you’ll use 20 years down the road–not bad if you’re on a tight budget!  Be aware, though, that some lease rates can increase between 2.5 to 4.5% per year (c.f. utility rates which typically increase about 5% annually).

However, there are a couple of drawbacks to the solar leasing model.  First,  the monthly fee is fixed, and not a function of the solar output of the array.  If you have a cloudy month, snow on your roof, or an equipment malfunction, you could be paying for the equipment without getting any production.  Thus, it’s important to choose a qualified leasing company with an equally qualified installation team.

Second, leasing is typically more expensive than buying a solar array outright, and often lease agreements have provisions for balloon payments or buyouts. The buyout price is determined by the fair market value of the equipment at the expiration of the lease period, not a predetermined number.

Other things to consider when entering into a solar lease are maintenance and downtime.  Ensure that the lessor is obligated to repair/replace any equipment in a timely and professional manner.  If not, see to it that you’ll be reimbursed for downtime.

Power Purchase Agreements

A PPA is a contract where a homeowner agrees to purchase all the solar energy produced from an array installed on his/her property (the host property), but the equipment is owned and operated by a third party (the solar services provider).   Rather than making a monthly payment, the homeowner is obligated to purchase all the power produced at a certain price per kWh.

Much like a lease, the contract term for a PPA is usually between 15 and 20 years, requires little or no money down, and often a rate escalator of 2.5 to 3.5% per year applies if you don’t pre-purchase the energy.  However, the terms, PPA rate, annual escalator, term length should be negotiable.

There are numerous benefits under the PPA financing model:

• For climates with significant snow or clouds, a PPA makes more sense than a lease.  Since you only pay for energy produced, you don’t have to pay out of pocket if your array is covered in snow or blocked by clouds.

• Energy purchased under a PPA is typically cheaper than that offered by a local utility, so you can live sustainably while saving money!

• PPA’s are a great way to avoid the volatility of energy markets, because you’re purchasing energy at a set rate for an extended period of time.

• You don’t have to pay for maintenance or deal with the system if it breaks.

A PPA may not make sense for everyone, though.  If you can afford to purchase a solar system outright, or qualify for low-interest financing, you’ll pay less over the long haul than if you go with a lease or a PPA.

Purchasing, Financing & Incentives

If solar leasing and PPA’s don’t sound attractive, you can always do it the old fashioned way — purchase the system and pay for its installation.  A number of tax credits and local rebates soften the blow of the initial expenditure.  First and foremost, you can get a 30% federal tax credit until 2016.  Many states also offer rebates or performance-based incentives of up to several thousand dollars, which you can look up at www.dsireusa.org/solar.

If you can’t swing the initial expense, you can obtain a number of low-interest loans from both federal agencies and private lending institutions.  Solar projects can be financed through an Energy Efficient Mortgage (EEM) as well as through PACE loans in a few states.

There are two significant benefits under the purchasing model:

• Once the system pays for itself in savings, you get free energy for the remainder of the equipment’s useful life (well, except for minimal maintenance); and

• If your utility allows net metering, you can sell electricity back to the grid, or, at least, wipe out some of your utility bill each month.