It wasn't supposed to be this way.

Two of green tech's fastest growing segments -- solar and energy efficiency retrofitting -- have emerged as unlikely and in many ways unwilling antagonists because of the rapid popularity of property assessed clean energy (PACE) financing programs.

Under PACE programs, governments provide financing to homeowners to help them buy new furnaces, replace drafty windows, and fill walls or attics with insulating foam. The loan then gets paid off as a supplement to the homeowner's property tax.

The problem is that solar panels generally can't qualify for PACE funding until other fixes have been accomplished.

In San Francisco, for instance, homeowners can only employ PACE financing to buy solar panels after they can show a 20 percent reduction in energy consumption achieved through an earlier retrofit.  In most jurisdictions, PACE funding for solar kicks in after consumers can show a 10 percent reduction in energy consumption, says Cisco DeVries, one of the originators of the PACE concept and the president of Renewable Funding, which helps cities and states establish their own PACE programs.

That second-in-line status burns solar companies. In many instances, homeowners won't be able to achieve the reductions, solar execs assert. PACE programs are also bureaucratic tangles: how do you prove a negative like energy consumption reduction that can be affected by a variety of factors?  With only so many spare dollars to go around, the program could cause consumers to veer away from solar.

"There shouldn't be a priority. People should be able to choose," says Gary Gerber, CEO of Sun Light & Power, one of California's largest and oldest solar installers.  "If you go into a building that is up to Title 24 standards (the California building efficiency codes), it is difficult to get another 10 or 20 percent out of it."

In California, some homeowners are in regions where solar rebates will soon drop. Should they really have to wait to get the best deal until they put in insulation? Gerber doesn't think so.

Additionally, solar installers claim the justification for PACE -- namely, that the gains achieved through energy efficiency retrofits cost less than putting solar panels on the roof -- has shrunk because of the nasty cost cutting that solar has endured.

"If you do honest economics, in most cases for most homes built in the last 30 years, solar is more cost effective," said Barry Cinnamon, CEO of Akeena Solar. "When solar was $10 a watt, going from single to double glazed windows made sense. But now solar is around $5 a watt. It is twice as cost effective as it was before."

Like Gerber, Cinnamon says he's not against efficiency retrofits. He thinks they are needed. He just thinks the program creates an unnecessary divide.

Matt Golden, president of energy efficiency startup Recurve, says that retrofitting is effectively in the same place that solar was a few years ago. Solar has benefited greatly from subsidies, like the German feed-in tariff and the California Solar Initiative. Now, retrofitting needs a boost from governments to really get moving.

Retrofitters also point out that PACE is not appropriate for all situations. If the retrofit isn't outrageously expensive, and if the homeowner doesn't plan to move, it can make more sense just to pay for the retrofit out-of-pocket. In other words, PACE is only a partial leg-up.

Golden and others also argue that efficiency remains cheaper than solar. In one recent example, a homeowner in San Francisco stands to cut his annual utility bill by $995 even after all of the PACE expenses are considered. In other words, he will make a profit on the retrofit. But, to bolster Cinnamon's point, the house wasn't built in the last 30 years either: it hails from the era of Victorian architecture.

Finally, when it comes to government help, solar actually remains the favorite son, retrofitters note. Consumers get a 30 percent tax credit for solar. A 30 percent tax credit for retrofits is capped at $1,500. That may change. President Obama is mulling more incentives for retrofitting under the HOME STAR Program--HOME STAR legislation was just introduced into the House--while Vice President Joe Biden has become a champion for PACE at the national level.  Approximately 17 states have already adopted legislation approving PACE-style programs.

Over time, the problem could resolve itself through mergers, i.e., solar installers will become retrofitters and vice versa. An earlier advocate of the comprehensive approach, Standard Renewable Energy, recently got bought by GridPoint, and GridPoint is now in the process of rebranding Standard Renewable. Lowe's works with Akeena on solar and Recurve on retrofits.

Golden, who worked in solar, noted that Recurve is a licensed solar installer, that it partners with solar companies, and that it has installed solar thermal water heaters. (Like their solar counterparts, both Golden and DeVries seem to be genuinely interested in forging partnerships with the solar industry.)

Gerber, by contrast, remains more skeptical of solving the issue through consolidation.

"These guys (solar installers) are electricians. What do they know about attic insulation?" Gerber asked. "Are we now in the social engineering business?"


Tags: barry cinnamon, cisco devries, energy efficiency, financing, gary gerber, insulation, matt golden, pace, property assessed clean energy, property tax, renewable funding, solar, title 24