Why are loans significant?

The cost of a renewable energy system is largely found in the technology itself, the associated equipment, incidental costs such as required renovations, and in its installation. Maintenance costs are marginal, and are the main cost after installation because renewable energy technologies have no fuel costs (asides from biomass technologies).

These up-front costs are inhibiting and can deter investment and growth in the sector.

The role of the Local Government

To overcome this barrier, a city can offer a low interest loan, or offer incentives for banks, or for the local or municipally owned utilities to provide these loans for the installment of a renewable energy project. The loan could either be a direct loan or the city could pay for the renewable energy system itself. The borrower can then pay it back directly through the local utility bill, to the city department responsible for the loan, and most frequently, through charges on their property tax bill. In this case, the city will complete a property tax assessment, and the loan is repaid through the property taxes of the property. Ideally these loans are repaid over a longer time period.

Loan Types

A zero or low interest loan is a loan that is offered below prime, and can be paid back over a longer period of time. Low interest loan funds ensure that there is broader participation in the community in renewable energy power production, by enabling lower income groups to access finance. A revolving loan is a loan that

This type of incentive could be used in combination with net metering and feed-in tariffs. The energy savings in the case of net-metering could offset the extra taxes, though in the case of the feed-in tariff, the feed-in tariff itself ensures a reasonable return that would likely offset the increased property taxes. In the case of a FIT, such loans as these could prove highly complementary to the FIT. While FITs ensure a reasonable rate of return, loans enable the project proponent to overcome the initial barrier of high up-front costs.

Another concept is the use of Local Improvement Charges (LICs) to finance renewable energy projects. LICs are normally used by many municipalities to finance infrastructure improvements (normally sidewalks and roads) that benefit a specific neighbourhood. These loans are paid back through the property tax bill, but instead of the individual homeowner, the neighbourhood or individual that owns the property and installs a RE project (Peters et al, 2005).

Berkeley, California is one of the cities around the world that pays for its citizens solar energy installations, and has the funds returned through an assessment on the citizens property tax bill. In the case of Berkeley, this time period is for 20 years, and the payments stay with the property in the event of the sale of the property. Berkeley also requires that a city-approved installer is used for the consultation and installation of the project. In this case, the power is not being fed to the grid, rather it is consumed onsite, and it is expected that the increased taxes are compensated by lower energy bills.

These examples should provide a good bit of background for the development of a similar loan in your jurisdiction. For more documentation, please visit the websites below.