Many municipalities have been selling bonds to build pools of money that residents use to finance the purchase and installation of solar power systems for their homes. Officials in Los Angeles, meanwhile, have taken a slightly different approach with a proposed electric rate increase that, for most customers of the Los Angeles Department of Water and Power, would add about $2 to their monthly power bills and encourage PV adoption by helping homeowners finance system purchases and then paying them to feed power back into the grid.

The proposal still needs approval by the Board of Water and Power Commissioners, which is scheduled to address the plan this week. It’s likely the city council also will weigh in on the idea, especially since fee increases of any sort are a touchy subject in the L.A. area, where there’s a lot of PV-friendly sun but also a relatively high unemployment rate.

The notion that the plan could boost employment among the area’s mostly moribund solar power companies is, in fact, being used by city officials as a selling point. The proposed rate increase – 0.7 cents – is part of a 2.7-cent carbon surcharge that city officials want to add to the 12 cents currently charged for each kilowatt hour of electricity used. The rate increase would achieve two goals, LA.’s chief deputy mayor, Jay Carson, told the New York Times. “The first is a drastic reduction in fossil fuel usage for energy, but the second, and more important for Los Angeles, is the creation of thousands of green-collar jobs,” since the plan would include financial incentives for customers to buy from PV panel makers in Los Angeles.

Soundings from Sacramento

The idea also has political juice behind it in Sacramento, the state capital, where Governor Arnold Schwarzenegger has touted a statewide goal: a million solar roofs by 2018. The money raised by the surcharge would be used to develop and run a home-audit and financing program, and pay a set rate, known as a feed-in tariff (FIT), to homeowners whose solar power systems feed electricity into the grid. The surcharge also would fund the development of other renewable-energy sources in L.A., such as wind farms.

Feed-in tariffs are certainly nothing new to California. The Sacramento Municipal Utility District announced a FIT program last year for its customer base of about 1.4 million. The California Public Utilities Commission, in February 2008, also implemented a FIT program for a much larger customer base, including public water and wastewater facilities and non-water and non-wastewater facilities served by San Diego Gas and Electric, Southern California Edison, and Pacific Gas and Electric.

One key to getting FIT programs to work is to set rates prudently – not so high that the pool of money is depleted too quickly, but high enough so that participants see a decent return on their renewable-energy investment. Should the L.A. proposal win approval, city officials will have their FIT work cut out for them.