PACE Financing for California’s Clean Energy Future, Part 1: Expanding the Residential Market

rp_Scott_Hofmeister-287x377.jpgWhen it comes to protecting the environment and fighting climate change, California has always been a first mover.

Now the state is boldly acting to unleash a new market that saves energy, cuts pollution, and drastically increases clean energy investment for California’s residents.

Last week, California approved a $10 million reserve that will revive the Property Assessed Clean Energy (PACE) program for residential customers.

PACE allows customers to take advantage of energy saving upgrades to their home with no money down. Customers simply use a portion of their savings to pay off the investment over time through their property tax bill. Financing can be entirely provided by private lenders at no cost to taxpayers.

Since its first use at a San Francisco office building in 2012, PACE has been a resounding success in the commercial sector. In fact, the commercial markets have quickly taken to PACE and continue to set new deal-size records.

The residential market started out equally strong, but cooled off when the Federal Housing Finance Agency (FHFA) raised concerns that PACE financing could be potentially hurting home mortgage holders like Fannie Mae and Freddie Mac. The FHFA announcement effectively stalled residential PACE, as local communities and homeowners were concerned about potential impacts to the mortgage markets.

Still, a few California programs have decided to offer residential PACE and have barely been able to keep up with demand, proving that the program can thrive for homeowners.

Sonoma County’s residential program has financed upgrades for nearly 2,000 homes since it began in 2009. Since December 2011, the Western Riverside Council of Governments has offered a residential PACE program to homeowners called HERO Financing. In that time, $134 million has been invested in clean energy upgrades for homeowners in a region of Southern California with a population of 1.45 million people.

At that rate, almost $30 billion of clean energy retrofits could be financed if a similar residential PACE program were adopted nationwide.

California’s latest proposal, ushered in by Governor Brown, will harness the success of PACE and its untapped potential, while easing the concerns of the FHFA. The new reserve will pay mortgage holders (like Fannie and Freddie) for specific losses they incur due to a PACE financing, so they don’t have to worry about losing money because of PACE.  We are hopeful the FHFA will bless this approach so that more states can attract private, clean energy investments at no cost to taxpayers.

Ultimately, California is poised to see a massive increase in residential energy efficiency and investment through PACE, all while helping residents save money, use cleaner energy, and protect the environment, too.

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One Comment

  1. Posted March 25, 2014 at 4:37 pm | Permalink

    This is very bad news for the solar companies that offer solar lease and PPAs. What homeowner in his or her right mind is going to sign a 20 year solar lease or PPA contract which offers no tax deductible interest when they can get $0 down PACE financing that lets the homeowner make his or her payments through their property tax bill and offers tax deductible interest while keeping the 30% federal tax credit and any other applicable financial incentive on a much lower priced system, (sub $3.00 a watt) for a much greater return on their investment. PACE financing will spell the end of solar leases and PPAs in California in 2014.

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