Special tax districts and municipal bond financing are not inherently sexy cocktail party topics. Nevertheless, these obscure and complex systems that leverage public capital to finance public works projects are expanding at a rapid clip into the space of on-site renewable energy project finance. Consumers' energy choices are growing as alternative forms of distributed generation become more cost-competitive. This Article seeks to demonstrate that municipal bond financing for on-site renewable energy and energy efficiency ("RE/EE") projects is uniquely structured and positioned to provide the most equitable access to communities of varied collective means.
II. RENEWABLE ENERGY AND RESIDENTIAL PROJECT FINANCING PRESENTING THE ISSUE OF EQUAL ACCESS
Traditionally, most electricity consumers have a fairly opaque relationship with both the source of generation as well as the system that delivers energy. Obfuscated by systemically complex utility monopolies, the energy generation and delivery apparatus in the United States is heavily regulated. The enormous capital costs associated with increasing generation, transmission, and distribution delivery capacity is shrouded by a regulatory process that parses these billion-dollar numbers into digestible line-item fees on a customer's utility bill.
A new market for distributed energy generation is emerging to site customer-based load capacity in proximity to where the electricity is being consumed. This Article refers to the siting of such RE/EE projects in close proximity to customer load or demand as "on-site." Collectively, these on-site electricity-generating facilities are known as distributed generation.1 Often most visible among the options for on-site electricity generation, solar photovoltaic ("solar PV") installations recall images of shimmering, high technology rooftops that feed electricity into a direct current-to-alternating current inverter, which supplies electricity into the distribution grid when the sun is shining. Until recently, mainstream homeowners disfavored solar PV and other RE/EE improvements because of the relatively high up-front cost associated with their installation. Nevertheless, in the last three to five years, the average customer has gained many financing options that defray much of the up-front cost of RE/EE systems. (2)
The space of on-site RE/EE finance is growing. In the private sector, traditional mortgage lenders and banks offer home equity loans; some generic and others specialized for RE/EE projects. Legislation in several solar PV markets has opened up the market to residential third-party system ownership. Pools of private equity finance the commissioning of systems through a simplified power purchase agreement and system lease. These residential third-party owned system structures are relatively new in most markets except California and vie for a relatively narrow sliver of the incentives available for RE/EE. Many offer no or low up-front cost, thus addressing one of the chief barriers to access. Nevertheless, public sector municipal bond-financed programs, pioneered in the City of Berkeley, offer yet another option for those seeking to make RE/EE improvements on their property.
Notwithstanding the expansion of financing options, there remain systemic obstacles to more widespread access to financing for RE/EE home improvements. Chief among these obstacles are the relatively constrained legal and financial lending parameters inherent in private sector equity-based financing. Private sector equity financing tends to remain available primarily to high net worth or high-income homeowners. These homeowners leverage their home as collateral for a loan that is used to finance RE/EE projects. For average homeowners, access to sufficient equity to obtain such a loan is limited. Further, as credit markets have contracted and the housing market in the United States has declined, most average homeowners lack adequate equity in their home to access financing. …