PACE financing

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Property assessed clean energy (PACE) is a means of financing energy efficiency upgrades or renewable energy installations for buildings. Examples of upgrades range from adding more attic insulation to installing rooftop solar panels. In areas with PACE legislation in place municipal governments offer a specific bond to investors and then turn around and loan the money to consumers and businesses to put towards an energy retrofit. The loans are repaid over the assigned term (typically 15 or 20 years) via an annual assessment on their property tax bill. PACE bonds can be issued by municipal financing districts or finance companies and the proceeds can be used to retrofit both commercial and residential properties. One of the most notable characteristics of PACE programs is that the loan is attached to the property rather than an individual.[1][2][3][4]

PACE can also be used to finance leases and power purchase agreements (PPAs). In this structure, the PACE property tax assessment is used to collect a lease payment of services fee. The primary benefit of this approach is that project costs may be lower due to the provider retaining the tax incentives and passing the benefit on to the property owner as a lower lease or services payment.

PACE programs help home and business owners pay for the upfront costs of green initiatives, such as solar panels, which the property owner then pays back by increasing property taxes by a set rate over about 20 years. This allows property owners to begin saving on energy costs while they are paying for their solar panels. This usually means that property owners have net gains even with increased property tax.

History[edit]

PACE was originally known as a "Special Energy Financing District" or "on-tax bill solar and efficiency financing."[citation needed] The concept was first conceived and proposed[citation needed] in the Monterey Bay Regional Energy Plan in 2005[5] but followed voter approval of a similar solar bonds program approved by San Francisco voters in 2001.[6] The concept was designed to overcome one of the most significant barriers to solar and costly energy efficiency retrofits: up-front costs. A homeowner could spend tens of thousands of dollars on a solar photovoltaic system, upgrading windows to be more energy efficient or adding insulation throughout the home, yet all of these investments would not likely be recovered when the home was sold. PACE enables the homeowner to "mortgage" these improvements and pay only for the benefits they derive while they own the home.

The first PACE program was implemented by Berkeley, California, led by Cisco DeVries, the chief of staff to Berkeley's mayor. Berkeley's PACE program was recommended as an alternative to the [solar bonds] authority approved by neighboring San Francisco voters in 2001 in conjunction with the City's Community Choice Aggregation program, which is being implemented in both San Francisco and Sonoma counties.[7] DeVries saw PACE to provide a viable means to help achieve the Bay Area's climate goals. California passed the first legislation for PACE financing and started the BerkeleyFIRST climate program in 2008.[3][8] Since then, PACE-enabling legislation has been passed in 30 states and the District of Columbia, allowing localities to establish PACE financing programs.[9]

However, PACE financing for residential properties was dealt a serious blow in 2010 when Fannie Mae and Freddie Mac refused to back mortgages with PACE liens on them.[10][11] As a result, Berkeley no longer offers this financing mechanism until these issues are resolved.

Benefits[edit]

For a city, PACE can play an important role in reducing local greenhouse gas emissions, promoting energy efficiency improvements in its buildings, making the shift to renewable sources of energy more affordable, and reducing energy costs for residents and businesses. Because PACE is funded through municipal bonds it creates no liability to the city's funds. PACE also enables states and local governments to design and implement such programs in their communities.[12] PACE programs also help to create jobs and thus spur local economic development when local solar installers and renewable energy companies partner with the program. It is also an opt-in program, so only those property owners who choose to participate are responsible for the costs of PACE financing.[1][8][13]

PACE enables individuals and businesses to defer the upfront costs that are the most common barrier to solar installation. The PACE loans are paid with property taxes over a course of roughly 20 years while energy costs are simultaneously lower, providing the PACE consumer with net gains. Also, because the solar panels and the PACE loan is attached to the property, the consumer can sell the property leaving the debt to be paid through the property tax assessed on the subsequent owners.[1][2][8][13]

Concerns[edit]

Several problems have been raised regarding residential PACE. In July 2010, the Federal Housing Finance Agency (FHFA) along with Fannie Mae and Freddie Mac objected to the senior lien status that PACE financing shares with other property taxes and assessments and took steps to stop residential PACE. The Agency issued a statement advising Fannie Mae and Freddie Mac to avoid buying mortgages with PACE assessments and hinted at more drastic actions, such as finding PACE homeowners in default under their mortgages. These actions stalled the development of residential PACE programs.

Commercial PACE is completely unaffected. There are 25 active commercial PACE Programs in 10 states and the District of Columbia. Sixteen programs have funded commercial PACE projects. Commercial PACE market is growing and evolving.

Locations with PACE legislation[edit]

PACE is enabled in 31 states and the District of Columbia, covering more than 80% of the U.S. population.

State Status
California Available some locations
Colorado Available, but no current loans
Connecticut Available
District of Columbia Available
Florida Available
Georgia Under development
Hawaii On hold
Illinois On hold
Louisiana Under development
Maine Available
Maryland On hold
Massachusetts Under development
Michigan Under development, available in Ann Arbor
Minnesota Available
Missouri Available
Nevada On hold
New Hampshire On hold
New Jersey Under development
New Mexico Under development
New York Available
North Carolina On hold
Ohio Under development
Oklahoma On hold
Oregon On hold
Texas On hold
Vermont Available
Virginia Under development
Wisconsin Available
Wyoming On hold

See also[edit]

References[edit]

External links[edit]