Chapter 7.5
Energy Conservation and Efficiency

• ALL
• Remove Code Barriers
• Create Incentives
• Fill Regulatory Gaps

Enact Property Assessed Clean Energy Program

INTRODUCTION

Property Assessed Clean Energy (PACE) programs provide a mechanism for owners of private property to finance low-cost, long-term funding for renewable energy (RE) and energy efficiency (EE) improvements. Most importantly, PACE programs offer homeowners an opportunity to take advantage of renewable energies without having a substantial upfront cost.[1] PACE programs are structured to provide 100% financing of a RE or EE project’s cost. That upfront cost is secured by the property, backed by the local government, and repaid by the property owner through an additional assessment on the owner’s taxes for a term of up to 20 years.[2] Local governments can make PACE available to both commercial (C-PACE) and residential properties (R-PACE). As of 2017, over 150,000 homeowners have made approximately $4 billion in RE and EE improvements through PACE programs.[3]

In most jurisdictions, state governments must enact enabling legislation authorizing local governments to offer PACE financing and form PACE assessment districts that recognize RE and EE developments as public “goods.”[4] After the districts are created, local governments establish special assessments for utilities that are financed through property assessments and similar collection procedures.[5] These assessment districts benefit local governments by protecting or insulating the government’s debt rating from being impacted by the PACE financing program.[6] Participation in the district is typically voluntary, allowing property owners to opt-in.[7]

PACE financing “debt” (evidencing the upfront costs) attaches to the property as a lien.[8] Securing the debt by a lien on the property has three distinct advantages. First, it reduces the initial financial burden by spreading out repayment over many years.[9] Second, the repayment obligation can transfer with the property, and thus is not required to be resolved prior to a subsequent sale.[10] Third, it provides owners assurance that their investment is protected, thus reducing apprehension of investing in RE and EE improvements.[11]

EFFECTS

Commercial and residential electricity usage accounts for roughly 32% of all electricity consumed in the U.S., with much of the generation coming from fossil fuel dependent and pollution emitting assets.^[12] PACE financing reduces reliance on fossil fuels by encouraging the adoption of RE and EE technology. By utilizing PACE to install RE and EE technology, property owners can reduce utility bills and their carbon footprint.[13] Communities that take advantage of PACE can encourage RE and EE developments without obligating money from the local governments’ general fund.^[14]

In addition to environmental benefits, PACE financing programs have a positive economic impact in the local community. For example, PACE programs financed roughly $4 billion in clean energy projects and have created approximately 35,000 new jobs since 2008.^[15] For every $1 million spent, 60 jobs are created and $10 million in gross economic output and $1 million in combined tax revenue is generated.[16] PACE programs, as a result, can help stimulate and stabilize the local economy, while reducing energy costs and levels of greenhouse gases.[17]

Since PACE’s inception, concerns over the PACE financing program have been voiced by bank regulators and market entities concerning the security of collateral in the event of a default. As recently as December 7, 2017 the U.S. Dep’t of Housing and Urban Development stated that properties encumbered by PACE liens are no longer eligible for FHA-insured forward mortgages.[18] Analysis shows, however, that concerns of increased risk may be counterbalanced by the benefits which the PACE program provides.[19] For example, PACE programs can stimulate the local economy, generate tax revenue, and install improvements on a home which increases its value and marketability, thus mitigating some concerns of the banking industry.[20]

EXAMPLES

33 states as well as D.C. offer some form of PACE financing.^[21] Below are several examples of both residential and commercial PACE programs established by local governments in these 33 states.

Los Angeles County, CA

In 2010, Los Angeles County began offering Property Assessed Clean Energy (PACE) programs to both Commercial (C-PACE) and Residential (R-PACE) owners.[22] The program, Los Angeles County Energy Program (LACEP), has been increasingly expanded and is intended to encourage installation of RE and EE improvements without the need for a large down payment.[23] Improvements can enhance property values, lower energy bills, reduce greenhouse gas emissions, and spur development of “green” economy jobs within the County.[24] All improvements that can be permanently fixed to the property and are proven to save energy or produce renewable energy are eligible for approval.[25] Such projects include high efficiency cooling and heating systems, electric vehicle charging stations, insulation, cool roofs, solar panels, smart irrigation systems, and more.[26]

Under the County’s PACE program, property owners contract with one of two County approved program administrators to finance the improvements.[27] The County is then authorized to issue bonds to these administrators under strict underwriting requirements.[28] The interest rates on these bonds are determined by conditions in the taxable bond market at the time of sale.[29] Once approved, the bonds are used to secure financing for RE and EE projects, which then are repaid to the municipality via an assessment on the owner’s property taxes.[30]

As of 2018, 87 of the 88 cities in Los Angeles County have adopted PACE through participation in LACEP.[31] Participation is voluntary, and municipalities can join by adopting a resolution that authorizes property owners to apply for PACE financing.[32] Santa Clarita’s R-PACE program became active in 2015 and as of November of 2016, participation resulted in 472 completed residential PACE projects, 55 PACE registered contractors, a total value of $12 million spent, with an estimated 250 future PACE projects.[33]

To view the program, see Los Angeles County Energy Program (LACEP) Program Report (January 24, 2017).

FAQ LA County PACE Program.

San Francisco, CA

San Francisco adopted and enabled PACE in 2010. Its program authorized the collection and levying of Special Taxes within the San Francisco Special Tax District. In 2011, San Francisco authorized the issuance and sale of special tax bonds for the PACE program to provide financing and refinancing for the acquisition and installation of RE and EE improvements on public and private property.[34] Under San Francisco’s C-PACE program, known as “GreenFinanceSF”, commercial property owners can secure 100% financing for RE and EE improvements.[35] GreenFinanceSF seeks to overcome the biggest hurdle to commercial energy upgrades by providing commercial property owners an avenue of finance to make improvements, while saving energy and money, and increasing both the property’s value and attractiveness to new or current tenants.[36] Once the RE and EE improvements have been made, property owners are protected from utility cost increases and can share the benefits with their tenants.[37]

San Francisco’s PACE program uses the “open market” PACE model which allows prospective developers to finance a project with a qualified capital provider of their choice.[38] An “open market” system permits an individual owner to target lenders and negotiate financing terms. The City then collects repayments from a special tax lien on the property and then pays the lender like any traditional PACE program.[39] To be eligible, property owners must be current on all property taxes, assessments, and liens for the preceding three years.[40] Furthermore, a professional energy and/or water audit must be conducted (for ordinances requiring and incentivizing commercial energy audits see Energy Benchmarking, Auditing, and Upgrading brief).[41] If a property owner receives financing for a RE system, the owner is also required to implement EE measures that result in at least a 10% improvement in energy performance.[42]

An example of GreenFinanceSF at work is Pier 1 in northeast San Francisco.[43] Under GreenFinanceSF, Prologis Inc. chose Clean Fund as their PACE capital provider, securing $1,400,000 in funds.[44] This made possible the installation of 200 kW of solar electric panels, retro-commissioned utilities, and an extensive lighting upgrade on Pier 1.[45] These energy savings allowed the pier to cut energy costs by 32% with an approximate $98,000 of savings per year and an estimated creation of nearly 30 jobs and $3.7 million in economic development as calculated by the U.S. Department of Commerce.[46]

To view the ordinances, see San Francisco, Cal., Ordinance No. 118-16 (July 31, 2016); San Francisco, Cal., Ordinance No. 308-11 (July 26, 2011).

District of Columbia – Audi Field

The District of Columbia began its PACE program in 2010 (“DCPACE”).^[47] Pursuant to DCPACE, the initial investment is provided by private lenders, and the loan is repaid through an assessment on property taxes. D.C.’s Department of Energy and Environment administers the DCPACE program.^[48] To date, 16 projects have received approximately $34,000,000.

Opening in 2018, the D.C. United Audi Field, is the latest product of DCPACE.^[49] The owners of the project, D.C. United, secured a $25,000,000 investment from a locally based private lender to deploy an 884 kW solar PV array, a storm water retention system at the stadium and other energy efficiency measures.^[50] The solar array offsets the stadium’s energy consumption by a third, producing approximately 1,000,000 kWh of solar electricity and reducing carbon emissions by 820 tons annually.

To view the ordinances, see Energy Efficiency Financing Amendment Act of 2012, 17R D.C. Code §§ 8-1778.01-.02. .21-.31, .41-.48 (2012); 8 D.C. Code §§ 47-895.31-.35 (2015).

For more information regarding DCPACE, see DCPACE: A Clean Finance Solution.

ADDITIONAL EXAMPLES

Miami-Dade County, Fla., Code of Ordinances §§ 2-2079-2091 (2018) (creating a county-wide PACE program that includes unincorporated municipalities).

See also Miami-Dade Green, Miami-Dade County Energy Efficiency and Renewable Energy Finance Program: Update of Existing Programs, Office of Sustainability (November 2013), https://perma.cc/KF4K-KY3M (last visited May 29, 2018) (recommendations and updates regarding PACE programs).

St. Louis, Mo. Code of Ordinances § 3.120.010-.060 (2011); Set the PACE St. Louis, St. Louis, MO, https://perma.cc/7WKG-UBT2 (last visited May 29, 2018) (using Ygrene LLC, to administer the St. Louis program).

ADDITIONAL RESOURCES

Pass PACE Legislation in my State, PACENation, https://perma.cc/WBJ9-FASQ (last visited June 19, 2018) (includes tools, tips and legal framework for enacting PACE).

NC Clean Energy Technology Center, Programs, DOE, https://perma.cc/P7N3-GVU8 (last visited June 19, 2018) (database of state incentives for renewables & efficiency upgrades).

Fact Sheet Series on Financing Renewable Energy Projects, NREL, https://perma.cc/7HB6-25XB (last visited May 22, 2018) (national renewable energy laboratory PACE factsheet).

Best Practice Guidelines for Residential PACE Financing Programs, DOE, (November 18, 2016), https://perma.cc/Y5XP-5PQV (last visited May 18, 2018).

Real Estate Review Journal, Charlene Vanlier Heydinger, 44 No. 1 Real Estate Review Journal ART 3 (identifying how PACE financing overcomes barriers to RE and EE deployment).