Green Financing

Green projects, especially for individuals, have a cashflow problem. Essentially, the upfront expense, whether for new lightbulbs or a solar roof, are large and these projects only pay off over the longer run. In some cases, you are also taking on a maintenance liability with the new system.

There have been in the solar industry arrangements called PPA (Purchased Power Agreements) for several years. In these deals, a third party installs and owns the facility on a rooftop, secures financing, and collects a guaranteed revenue stream from the building owner as he purchases power. Furthermore, any subsidies and tax benefits accrue to the PPA provider, who is also responsible for system maintenance.

There is a similar model being proposed in the lighting industry. Solid state lighting has the potential to greatly exceed the efficiency of existing lighting and could save 15% of national electrical use eventually. But the 'light bulbs' (LEDs) are substantially more expensive than traditional lighting. However, they will last for 20 years. Furthermore, the efficiency of the technology is still improving rapidly. This presents three problems: lighting companies today are in the light bulb replacement business. They will need to change business models if they are to succeed when replacement cycles reach 20 years. And facility owners are not willing to up-front the costs of SSL, especially if two years later even better technology becomes available. Enter a new business model: 'leased light'. Instead of purchasing light bulbs and fixtures, the lighting manufacturer or provider enters a contract to provide light at certain specifications for a certain price (perhaps tied to electricity prices). The lighting provider collects a revenue stream for light, and decides when to install the next generation based on long-term payback of the improved technology vs. the view on electricity prices. Efficiency improvements then accrue to the provider in reduced electrical costs.

Both of these models, while useful for businesses, break down in the residential market. The problem is that homeowners (need to) sell their houses with relative impunity. So any long term agreement or financing can't be guaranteed. In essence, what is needed is an agreement attached to the house, not the owner. Enter the Berkely First project. In this scenario, the city floats a bond to finance solar roofing for residences. The owners install the roofing with city money, and the owner pays for it long term by an additional line item on his property tax bill. If the owner sells, the new owner will continue to pay on the property tax line item until the bond is repaid. So the financing is attached to the building, not the person. The owner is still responsible for maintenance, as with the rest of his house, and it is in his interest as the benefits of reduce electricity bills depend on it.

I've often thought that the biggest problem in going green is going to be financing, not technology. Creative solutions like these will provide relatively painless avenues for people to install the technology.

h/t The Vine