PACE: Property Assessed Clean Energy Financing

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Problem:
Many residential and commercial property owners want to make their homes more energy efficient, but are unable to pay the upfront costs.


Solution:
Enable municipalities to provide upfront investments through a Property Assessed Clean Energy (PACE) program.

How PACE Works:
PACE is a voluntary program and stands for Property Assessed Clean Energy. It enables interested Cities or counties set up special Clean Energy Development Boards (CEDB) capable of issuing low-interest bonds, and the bond money is used to cover the costs of a loan program. Participating property owners, both commercial and residential, can opt-in and receive a 20 year loan for renewable energy and energy efficiency improvements, and pay the loan back through a 20 year assessment on their property taxes. This arrangement spreads the cost of clean energy improvements—such as a solar array, energy efficient windows, upgraded insulation, etc - across a 20-year payment plan that automatically transfers to the next property owner if the property is sold. The monthly energy savings is always more than the assessment.

What are the benefits to participating property owners?
  • Low Upfront Cost - Removes the upfront cost barrier of renewable energy and energy efficiency improvements. Most programs only charge a small fee to property owners.
  • Less Investment Risk - Removes the uncertainty of recovering the cost of improvements if the property is sold, since the loan stays with the property via the tax assessment.
  • Lower Monthly Payments - Reduces the cost of ownership of the property immediately, since the monthly loan payment is typically less than the monthly savings on utility bills.
  • Good Financial Sense - The loan typically has terms that are better than other loan options.

What are the benefits to cities?
  • Revenue Neutral - PACE loan programs have very little impact to the city’s budget, since the bonds cover both the loans and the program administration costs and are repaid through the voluntary assessments placed on participating property owners. Loan payments are collected alongside property taxes.
  • Job Growth - PACE has the ability to stimulate local job creation through the installation of solar energy and efficiency improvements on private property – jobs that can’t be outsourced!

Advantages of PACE Financing

For Our Nation:
  • Significant job creation
  • Accelerates movement toward energy independence & reduces GHG emissions
  • Very low fiscal cost & high probability of success
For Property Owner:
  • Lower energy bills and substantially reduced upfront costs for energy retrofits
  • Improved return on investment/positive cash flow on retrofits (annual savings > cost)
For States, Cities & Municipalities:
  • Immediate job creation
  • No credit or general obligation risk
  • Obligation is liability of real estate owner
  • Greenhouse gas reductions/energy independence
  • Opt in: Only those real estate owners who opt in pay for it
For Existing Mortgage Lenders:
  • Borrowers cash flow/credit profile improves (energy savings > annual tax cost)
  • Property/collateral value increases
For Bond Holder:
  • Virtually no risk of loss as property tax liens are senior to mortgage debt
  • 97% of property taxes are current & losses are less than 1%

Sample Project

1)  $18,000 project pays for insulation in attic & walls, new windows, and high-efficiency heat pump for a home

2) Total project cost is $20,000 (including financing & administration costs)

3) Yearly assessment = $1,000  ($20,000 repaid over 20 years)

4) Resulting energy savings = $1,500 (must be greater than the yearly assessment in this case $1,000/yr)

5) Net Result = ($1,500 - $1,000) =  $500 savings/yr