Property Assessed Clean Energy (PACE) is an innovative financing technique for clean energy retrofits that was first developed in Berkeley in 2008, giving energy efficiency projects a huge boost throughout the U.S.
Here’s how it works: Property owners agree to a long-term tax assessment on their home or building in exchange for the upfront funding to pay for a retrofit. What’s great about the program is its ability to essentially eliminate one of the biggest barriers to energy efficiency retrofits: up-front costs.
And, just as with any other property tax assessment, the obligation transfers to the new owner upon a sale of the property. This transferability allows property owners to consider projects with longer payback periods as the obligation does not become immediately due upon sale.
From a lender’s perspective, because this obligation is part of a property tax bill it has a very high likelihood of being repaid, even under a foreclosure.
Successful PACE programs have the potential to net great results from reducing greenhouse gas emissions and improving energy efficiency to reducing total energy costs for both residents and businesses.
Unfortunately, in July 2010, the Federal Housing Finance Agency (FHFA), the regulator for Fannie Mae and Freddie Mac, threatened to take action against homeowners and municipalities that participated in PACE programs for residential properties. FHFA’s pronouncement has effectively curtailed most residential PACE programs, with the exception of Sonoma and Riverside counties in California.
Sonoma and Riverside counties have clearly demonstrated that there is significant consumer demand for clean energy retrofits that improve comfort and save money. To date Sonoma has financed $52.8 million of PACE retrofits. Renovate America, which provides funding for the Riverside program, has funded $134 million of projects in that program and a recently launched similar program in San Bernardino County.
California Governor Jerry Brown has long supported residential PACE programs as a strategy to create jobs, save homeowners money, and improve the environment. The governor’s office has been working diligently for the past three years to come up with a solution that will satisfy FHFA and reinvigorate PACE across California.
Last week, California announced preliminary regulations that would provide funding intended to make Fannie and Freddie whole if they foreclosed on a property with an unpaid PACE obligation. The program is closely modeled after a Vermont PACE program that was able to get a waiver from FHFA.
In December, Mel Watt was approved as the new Director of the FHFA. EDF urges Mr. Watt to quickly provide California with a waiver so that we can put Californians to work on clean energy retrofits across the state and establish a model for residential PACE 2.0 that can be used across the country.