Kentucky Adopts Innovative PACE Clean Energy Financing Tool

By: Jeremy Faust, Strategic Business Development Director, Greater Cincinnati Energy Alliance

In a surprising show of bi-partisanship, lawmakers in one of the nation’s more conservative states came together last month to approve a major victory for clean energy.

Kentucky became the latest state in the country to approve PACE (Property-Assessed Clean Energy), an innovative financing tool that allows cities to use their property taxes as a way to finance clean energy upgrades to buildings.

PACE’s unique structure and benefits have helped spur the proliferation of PACE programs around the county. As a result, the market for PACE financing is estimated to rise above $1 billion this year.

Kentucky has authorized businesses and other commercial property owners in the state to apply for PACE financing, which can be used for energy efficiency, renewable energy, and water efficiency improvements to their buildings. The victory comes after a two-year legislative effort led by the Greater Cincinnati Energy Alliance and the Kentucky Energy Project Assessment Districts (EPAD) Council.

Long-term structure of PACE financing offers security

PACE is especially vital for a state like Kentucky, where energy prices are low and state subsidies are limited. The security of attracting repayment through a property tax assessment enables longer-term financing (typically up to 20 years), thereby enabling a project to show positive cash flow on an annual basis.

While it’s difficult to finance clean energy projects from energy savings achieved over the short term, PACE’s extended-term structure helps solve that problem. In doing so, PACE reduces the risk for both project owners and investors.

Developers are coming to PACE to address historic hurdles in the project development cycle and property owners are using PACE to surmount their own internal roadblocks.

The Greater Cincinnati Energy Alliance is working with the Kentucky Department for Energy Development and Independence and others, including law firm, Frost Brown Todd, and energy services specialist, Harshaw Trane, to develop the tools needed to facilitate PACE financing and establish a pipeline of initial projects beginning later this year.

Bi-partisan coalition leads to legislative victory

The legislative process to approve PACE in Kentucky faced a number of challenges, but prevailed with the help of a strong coalition from both parties. Leaders from local businesses, contractor associations, manufacturers, architects, and municipal associations helped promote the bi-partisan nature of PACE.

Representative James Kay of Woodford County authored the bill and brought the parties together behind this united front. The Greater Cincinnati Energy Alliance, which has already begun to deploy PACE throughout southwest Ohio, found a receptive audience in Kentucky lawmakers and constituencies.

After explaining the potential for PACE to support investment in existing businesses and upgrades of outdated infrastructure, Kentucky businesses and local community groups lined up to offer support.

For more information on GC-PACE, go to www.GCPACE.org, where you can watch a short video on the PACE/EPAD model.