The Berkeley, California, city council Tuesday night greenlighted a proposal to pay for the installation of solar panels and solar hot water systems for any homeowner or commercial building owner in a move to dramatically boost local use of renewable energy. Property owners would retain ownership of the solar systems, paying back the cost over 20 years through an assessment on their annual property tax bill.

“We’re off and rolling,” said Berkeley Mayor Tom Bates after the city council unanimously gave initial approval for the Sustainable Energy Financing District.

Cisco DeVries, Bates’ chief of staff who devised the municipal solar financing proposal, said the city hopes to start signing up homeowners by June 2008. But first it must hammer out the legal and financial details. The city will likely float a bond to obtain millions in bank financing to pay for homeowners’ solar arrays.

“The banks and others have been very interested in this,” said Bates. “The banks that Cisco and I have had conversations with have been very encouraging.”

City manager Phil Kamlarz said Berkeley should be able to obtain a lower interest rate than commercial home equity loans as the property tax assessment will act as a lien, putting banks first in line to collect in the event a property owner defaults.

“We’re looking at what’s the benchmark to make this thing work and right now its less than 7.5% so we’re going to try to make this less than 7.5%,” he told council members.

A property owner would choose a solar installer from a city-approved list. It appears to be a win-win situation solution to the high cost of going solar. The homeowner immediately begins saving money on electricity bills without incurring the $15,000 to $30,000 upfront cost of installing a solar system. They also usually get a boost in their property value from the solar array and the property tax that pays for the system is deductible on their federal income tax return. When the house is sold the solar array and the tax assessment remain with the property, passing to the new owner and thus further diluting the cost of the system.

Bates said other cities have approached him about replicating the Berkeley initiative. The city has won the backing of utility PG&E (PCG) and the solar industry has, not surprisingly, been enthusiastic about a program that promises to expand the market for solar panels made by companies like SunPower (SPWR) and Sharp as well give installers more work.

“This is going to create green collar jobs,” said Bates.

Berkeley’s left-wing politics often puts it on the fringe of the U.S. mainstream but when it comes to environmental policies, the Bay Area city has led the way. Berkeley, after all, was the first city to adopt curbside recycling decades ago, now common even in some of the reddest of red states.

“The power of this is really expanding it beyond Berkeley,” noted one council member.