California homeowners and business owners may soon be able to turn to their cities for loans to install costlysolar-panel systems, even if they don’t live in Berkeley.

On Monday, Gov. Arnold Schwarzenegger Gov. signed a new bill into law, Assembly Bill 811, which gives cities the ability to provide low-interest solar-panel loans to homeowners and small businesses.

Solar-power systems can cost around $30,000 for homeowners and more for large office buildings.

The legislation, authored by Assemblyman Lloyd Levine, D-Van Nuys, also provides loans for energy-efficiency projects like replacing air conditioning units or installing dual pane windows.

Residents would pay the loans back though assessments on city utility and property tax bills.

The legislation was partly inspired by Berkeley's City Council, which approved a loan program in November to pay the upfront costs of installing solar power in city businesses and residences, said Alex Traverso, a spokesman for Assemblyman Levine.

Berkeley is a "charter city," which means the city runs under locally adopted charters and has supreme power over its municipal affairs. California has 108 charter cities, including San Francisco and Los Angeles.

But before the new state law, "general-law cities," which far outnumber charter cities in California, at 370, were not allowed to dole out low-interest loans to install solar-power systems on privately owned property. The legislation opens the door for all of California's cities to pursue a loan program for solar installation. However the legislation doesn't describe how cities should implement such a program or where the money to pay for a program should come from.

There are a variety of options in which a city could finance a solar-loan program. "Some cities may have the money on hand in their general fund," Traverso said.

Other possibilities include cities partnering with a utility to get financing, he said. A utility could use solar power to help meet its renewable portfolio standard, which require a certain percentage of utilities' energy to come from renewable sources. California aims to get 20 percent of its energy from renewables by 2010.

Other possibilities include issuing municipal bonds, according to Traverso.

Through a city-sponsored loan program, like that of Berkeley's, Traverso explained that homeowners and businesses will gain more leverage when it comes to getting over the upfront costs of installing solar panels.

Of course Berkeley's idea to boost solar installations through upfront financing isn't unique.

Companies such as SunEdison, MMA Renewable Ventures and Recurrent Energy have been paying installation costs in exchange for power purchase agreements where commercial customers will buy the power. And companies like SunRun do the same for residential customers.

Such companies can coordinate financings with major corporations that can take advantage of the tax benefits of owning solar installations.

But government agencies have the advantage of being able to tap into tax-exempt, low-interest financing such as bonds, potentially cutting costs in half compared to commercially financed installations, said Paul Fenn, CEO of Local Power, which helps government agencies set up renewable-energy programs.

Fenn said he could see how cities setting up low-cost loans programs for solar installation could be perceived as a threat to companies like SunEdison and MMA, explaining that it challenges their business model, which relies mostly on banks and investors for project financing.

But Fenn thinks that municipal financing will be a boon for those who offer power purchase agreements. These companies will have to re-jigger their business models to recognize there is a new bank in town, he said.

Fenn believes the low-interest loan legislation is a sign of what is to come, which is that more municipalities are actively securing renewable energy for their residents.

He points to San Francisco as an example. In June, San Francisco Mayor Gavin Newsom signed the largest U.S. municipal solar-incentive program into law (see San Francisco Solar Incentive Becomes Official).

And in California the pressure is on for cities to act as the state looks to cut emission to 1990 levels by 2020 (see California Offers Plan to Clear the Air).

"Cities cause climate change. They consume 80 percent of all energy," Fenn said.

To help the state reach its goals, municipalities will have to enter the energy markets, said Fenn. But don't think that cities are looking to take over the energy industry, he said. "These days they use the private sector to do it. They are going to bid it all out."