Page 106 - Sustainable Cities and Communities Design Handbook

PoliticaleEconomic Governance of Renewable Chapter j 4 83

health, and climate change factors, all of which have financial and economic
information associated with them. The point is CBAs are limited. The basic
concept is that the LCA consists of one long-term finance model in the United
States today for solar systems called a Power Purchase Agreement (PPA) that
contracts with the solar installer or manufacturer for 20e30 years. The PPA is
a financial arrangement between the user “host customer” of solar energy and
a third-party developer, owner, and operator of the photovoltaic system (Clark,
2010).
The customer purchases the solar energy generated by the contractor’s
system at or below the retail electric rate from the owner, who in turn along
with the investor receives federal and state tax benefits for which the system is
eligible on an annual basis. These LCA financial agreements can range from
6 months to 25 years and hence allow for a longer ROI. However, there are
other ways to finance new technologies especially if they are installed on
homes, office, and apartment buildings. Today financial institutions and in-
vestors can see an ROI that is attractive when the solar system on a home, for
example, is financed as a lease, part of tax on the home, or included in the
mortgage itself like plumbing, lighting, and air-conditioning.
Some newer economic ideas on how to finance technologies that reduce
“global climate change” are interesting. One way to describe the GIR
financial mechanisms is by looking at the analytical economic models that
financed the 2IR. For example, the 2IR was based on the theory of abun-
dance. The earth had abundant water and ability to treat waste. Hence
buildings, businesses, homes, and shopping complexes all had plumbing for
fresh water and drainage for waste. The same scenario occurred in electrical
systems that took power from a central grid for use in the local community
buildings. Locally and globally, people have found that systems work, but
that now with climate change, they need to conserve resources and be more
efficient.
When these economic considerations are factored into even the CBA
rather than an LCA financial methodology, the numbers do not work
(Sullivan and Schellenberg, 2011). Financial consideration for energy trans-
mission and then monitoring by smart systems are needed, but costly. Long
distances make them even more costly today because then the impact of the
climate (storms, tornadoes, floods, etc.) with required operation and mainte-
nance are added with security factors. The actual “smart” grid is at the local
level where these and other uncontrolled costs can be eliminated and
monitored.
The financing of water, waste, electrical, and other systems for buildings
was over time incorporated into the basic mortgage for that building. In short,
modern 2IR infrastructure systems were no longer outside (e.g., the outhouse
or water faucet) but inside the building. What this 2IR financial model does is
set the stage for the GIR financial model. Much of the 2IR financing for fossil
fuels and their technologies came about as leases or building mortgages. A