Sonoma County Funds First AB 811 Loan

Last night, Sonoma County sent us some good news that we are happy to share — it has funded its first clean energy loan secured by a lien on property taxes.  As we have posted before, the Sonoma County Energy Independence Program is California’s first county wide energy efficiency financing district, authorized by AB 811.

The loan of $25,500 went to homeowners and paid for a 5 kilowatt photovoltaic system, net of an $8,200 California Solar Initiative rebate, and 30% tax credit on the remaining system cost.  What’s more they report in their press release (download here-> sceip-dekay-release (1)) that there is already $6 million worth of applications for more loans from the programs.

During the ULI Developing Green Conference last week, there was much buzz about the power of energy efficiency financing districts as being a true game changer for energy efficiency and carbon emissions reduction.  I’ve included one of my slides discussing it in my presentation on energy efficiency financing. ULI drew its typical smart crowd, who talked seriously about the critical milestones that would affect the success of this funding mechanism:

-     The additional property tax liens created by these loans might disturb some commercial real estate lenders who might see them as a threat to the priority of their loan.

Several folks felt that lenders might become more relaxed about this when they compared the actual loan size to their own mortgage loans (very small), as well as the fact that the loan might accomplish energy efficiency retrofits which upgrade the property – and possibly even its cash flow and value. Note that Sonoma County’s program tells commercial property owners to get the approval of their lenders before applying for their loans.

-    We’re all still waiting to see that the bond markets will buy paper based on these types of loans, their terms, pricing and conditions. That acceptance is needed to bring increased secondary market liquidity to these funding mechanisms. Without it, these size programs will remain too limited to have much environmental impact and potentially just wither on the vine.

Get to Know One Block Off the Grid

Of course, no innovative program can exist without attracting smart folks who can commercialize it and ramp up its scale   We were just recently contacted by  One Block Off the Grid, which essentially runs a Costco for solar shoppers. Consumers join them in towns where they’ve set up shop, joining a big pool of like-minded consumers they’ve organized – to be able to bulk buy solar systems and share the discounts. Organizing and scaling up around energy efficiency loans is very impressive. The fact that they showed us some love yesterday warmed our hearts as well. We’re keeping an eye on them and hope to report more good things on their progress.

So Can Easy Green Finance Affect Home Pricing?

Homebuilders and homeowners should think for a second –> what does it mean for home prices in those areas where homeowners have direct access to easy credit for clean energy systems, energy efficiency retrofits, not to mention some pretty good rebates and tax credits?

Do you think that easy access to this type of green financing (and the benefits of the retrofits that it enables) makes it harder for other property owners to sell their unretrofitted properties at market rates? Will more homebuilders have to build green homes to compete?

Yes, AB 811’s gonna keep things interesting — and good — for a while.

$100 Million Energy Efficiency & Water Conservation Loan Program for Sonoma County

The Sonoma County Board of Supervisors and Water Agency will kick off a new $100 million energy efficiency and water conservation loan program, called the “Sonoma County Energy Independence Program”.

The program is one of the early fruits of the innovative AB 811, which provide green finance via the creation of energy efficiency financing districts - something that we’re quite passionate about.

FACT: Sonoma County is the very first public body in California using AB 811 to create an energy efficiency and water conservation financing program for the entire county.

AB 811 plays a key role here (we’ve posted about it before, here and here) because it allows California counties and cities to form “contractual assessment programs” to provide loans for the installation of solar panels and other energy efficiency improvements to property owners. The loans are repaid via an assessment on the owner’s property tax bills over time — up to 20 years.

Since these loans facilitate energy reduction and with that greenhouse gas reductions across the entire jurisdiction, AB 811 is a key policy tool that cities and counties can use to comply with climate change commitments required of them.

Add to that the green jobs bonus –> they also hope that funding $100 million in loans over the next few years will translate into a big economic boost to Sonoma County’s green building industry.

Energy Efficiency Financing Districts - Pro’s & “Issues to Watch”

Pro’s

• Helps cities and counties directly reduce greenhouse gas emissions in their jurisdictions.
• Low capital, relatively “painless” way for property owners to pay for upgrades to obtain desired energy reductions and water conservation on their properties.
• Very competitive source of capital: Sonoma County, for example, may charge 400 bps over like term US Treasuries + 50 bps. A full 20 year term would result in an all-in interest rate of 7.5-8 percent, which is not bad compared to typical commercial banking rates for the similar improvements.
• Actual credit terms for property owners are easier than traditional bank debt: no credit checks or income requirements are needed to qualify for the loans.
• Green jobs bonus –> Sonoma County hopes that $100 million in loans over the next few years will translate into a big economic boost to Sonoma County’s green building industry.

Issues to Watch

• No one knows for sure what the true loan volume will be. Sonoma County and water agency officials are reporting that earlier surveys of property owners indicated a high level of interest in this program, so they are expecting brisk business.
• “Warehousing” and bond market risk: Sonoma County is funding initial loans and costs out of pocket. It is relying on the bond market to become the eventual source of capital for follow on loans. The success of their program is tied to achieving bond market at rates that are feasible given the lending rates to the property owners. The bond market has no experience with these types of loans, so their eventual pricing remains “open”. If the bond market demands much higher pricing for these loans than projected when original loans were funded (meaning that it doesn’t like these deals), that would make a bond offering unsuccessful, forcing the County to hold these loans on its own books and restricting capital meant for other obligations.
• Already overleveraged property owners can possibly get further into debt, due to the easy credit terms of these loans.
• No one knows if the total amount of these programs is really enough to achieve the required emissions reduction targets.

Despite some of the open issues, this type of program is still, in our view, quite innovative. Given the a) generally tough state of traditional finance markets, b) the need to use financial tools to reduce energy, water and greenhouse gas emissions as well as c) the easier credit terms the property owner could obtain with county and water district funds anyway — this type of green financing is not only timely but compelling.

Congratulations and good luck, Sonoma County!

Solar Sonoma County Pushes Consortium Sustainability Financing District

We’ve said it before and we’ll say it again: sustainability financing districts are THE most innovative green finance solution out there. The whole AB811 snowball just keeps getting bigger.

Case in point: Solar Sonoma County’s creation of a solar financing program for all Sonoma County residents and businesses.  When the city of Sebastopol tried to create its own sustainability financing district, it was too small. Their upstart solution?  Put together a consortium of cities and groups to achieve the scale needed and create a county wide solar financing program. The creation of this program is still in the works, however the article documents the fact that they are gaining the most desired quality in today’s shaky capital markets: t-r-a-c-t-i-o-n!

We know from our own work that Sonoma County touts itself as America’s greenest county. Nearly every major city there has enacted green building ordinances in one form or another.

Our suggestion: They should change their name to “Smart Solar Sonoma County”.