Performance Bonds for Clean Energy – California

It is no secret that state financed construction projects require performance and payment bonds. In the November 2012 election, California voters adopted Proposition 39 which requires multi-state businesses to pay income taxes based on percentage of their sales in California. Half of these funds are earmarked to fund projects that will require performance and payment bonds.

For the first five years, half of that money is slated to fund energy efficiency and clean energy projects in California schools and other public buildings; half goes to the general fund. The estimated increase in state revenues as a result of proposition 39 are $1 billion annually.

“California voters not only modernized the state’s corporate tax structure by passing Prop 39, they indicated their strong support for renewable energy, including expanding solar energy and encouraging related investment over the next five years,” Carrie Cullen Hitt, vice president for state affairs at The Solar Energy Industries Association, said in statement.

Companies in the clean energy field that want to take advantage of this coming opportunity should line up their performance bonding needs now so when the jobs come out to bid, they are ready to respond. There are many surety companies willing to bond  clean energy projects as long as the technology is proven and readily available.

There are some underwriting considerations specific to clean energy which will be looked at by the underwriting companies. For instance, contracts that contain efficiency guarantees or contracts that include long term maintenance will be difficult, if not impossible to bond. A professional surety bond agent will be able to recognize these issues prior to bid and can offer alternatives to the owner to make the project bondable.

Prop 39 is still new and no one really knows for sure how the money will be spent. It will probably be many months before the first state funded project is bids contractor should have plenty of time to establish their bond programs and be in position to obtain some of this work.