Setting the PACE on Clean Energy Finance

I spend most of my time working to establish On-Bill Repayment programs that allow property owners to use their utility bill to repay loans for cost-saving energy efficiency or renewable energy upgrades.  Many of my colleagues work on a similar program known as Property Assessed Clean Energy (“PACE”), which uses the property tax bill for repayment.  Since both utility and property tax bills are usually paid, both PACE and OBR are expected to lower the cost and increase the availability of financing for clean energy projects.

Last week, I was invited to attend a meeting of the leading PACE program administrators, property owners and other market participants in the country — and was pleasantly surprised to learn how much progress is being made.

Connecticut launched their program in January and is expected to close $20 million of PACE transactions for commercial properties by year end.  The Toledo, Ohio area expects to have executed $18 million of commercial transactions by the end of 2013.  Sonoma County, with a population of less than 500,000, has already completed $64 million of financings for residential and commercial properties.  In late 2012, CaliforniaFIRST launched a PACE program for commercial properties that has already received 130 applications.

We also heard from the head of Keep PACE in Texas who recently sponsored legislation to enable PACE in the state.  PACE, like OBR, uses private funding to allow property owners to voluntarily retrofit their properties.  This makes the program popular with many conservatives and the legislation was able to pass with a unanimous vote from the Texas House of Representatives in May.

Historically, most of the PACE transactions have gone toward financing energy efficiency improvements.  As I wrote in May, Connecticut has set up their PACE program to include financing solar projects as well – using financing structures (leases and power purchase agreements) that tend to provide the lowest-cost solutions for building owners.  Last week, I learned that CaliforniaFIRST and other California-based PACE programs may now be able to offer the same solution for commercial property owners across the state.  This could dramatically increase the availability of financing for solar projects in commercial properties.

Most solar deals are financed over 20 years.  For properties with good credit, this works well as solar photovoltaic (PV) panels have a long lifespan and solar generation can be predicted accurately.  Most government buildings tend to have good credit and can usually finance solar with no money down.  Unfortunately, unless a commercial property is owned or leased by a highly-rated company, the property does not normally qualify for financing.

PACE programs can put an obligation onto the property tax bill that survives all changes in ownership and allows most properties to qualify for credit.  I am hopeful that PACE will be a game changer for solar installations for commercial properties in California. Ultimately, these improvements will save property owners money by reducing their energy consumption, put Californians to work and lower harmful pollution in the process.

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  1. Kim Shanahan
    Posted September 27, 2013 at 11:20 am | Permalink

    Our state, New Mexico, passed enabling legislation to allow counties to offer PACE programs just prior to FHFA shutting down the programs, so no programs were enacted. How is it that they are flourishing in other areas? What are we missing?

  2. Mica Vehik
    Posted September 30, 2013 at 1:03 pm | Permalink

    Kim, it’s unfortunate to hear that the PACE program did not move forward in New Mexico, but it’s not surprising to hear that FHFA had a hand to play in the matter. Most of the programs Brad mentioned in his blog are focused on commercial properties where FHFA is not involved.

    FHFA believes that PACE programs increase financial risks to residential lenders and has impeded progress in other areas, not just New Mexico. Last year, several stakeholders and cities, including two in New Mexico, voiced their support for PACE. As a citizen, we encourage you to write to your state representatives and push for the same success other states like Connecticut and Texas are experiencing. Thanks for reading.

    -Mica Vehik, Communications Director for EDF’s US Climate and Energy Program