Lessons in Commercial PACE Leadership: The Path from Legislation to Launch
Lessons in Commercial Leadership: The Path from Legislation to Launch (released February 2018) is a resource from the U.S. Department of Energy (DOE) and Lawrence Berkeley National Laboratory. Lessons in C-PACE Leadership aims to fast track the set-up of commercial property assessed clean energy (C-PACE) programs for state and local governments by capturing the lessons learned from leaders.
The report examines the long list of potential program design options and important decision points in setting up a C-PACE program, tradeoffs for available options, and experiences of stakeholders have gone through (or are going through) the process. The resource draws on interviews with leading market actors and established programs in Texas, Connecticut, California, and many other successful C-PACE programs.
Property Assessed Clean Energy
The property assessed clean energy (PACE) model is an innovative mechanism for financing energy efficiency and renewable energy improvements on private property. PACE programs exist for both residential properties (commonly referred to as Residential PACE or R-PACE) and commercial properties (commonly referred to as Commercial PACE or C-PACE). There are some key differences between commercial PACE and residential PACE, which has resulted in different rates of adoption and implementation across the U.S.
Commercial and residential PACE programs share a common foundation. PACE programs allow a property owner to finance the up-front cost of energy or other eligible improvements on a property and then pay the costs back over time through a voluntary assessment. The unique characteristic of PACE assessments is that the assessment is attached to the property rather than an individual.
PACE financing for clean energy projects is generally based on an existing structure known as a "land- secured financing district," often referred to as an assessment district, a local improvement district, or other similar phrase. In a conventional assessment district, the local government issues bonds to fund projects with a public purpose such as streetlights, sewer systems, or underground utility lines.
The recent extension of this financing model to energy efficiency and renewable energy allows a property owner to implement improvements without a large up-front cash payment. Property owners that voluntarily choose to participate in a PACE program repay their improvement costs over a set time period—typically 10 to 20 years—through property assessments, which are secured by the property itself and paid as an addition to the owners' property tax bills. Nonpayment generally results in the same set of repercussions as the failure to pay any other portion of a property tax bill.
A PACE assessment is a debt of property, meaning the debt is tied to the property as opposed to the property owner(s). In turn, the repayment obligation may transfer with property ownership if the buyer agrees to assume the PACE obligation and the new first mortgage holder allows the PACE obligation to remain on the property. This can address a key disincentive to investing in energy improvements because many property owners are hesitant to make property improvements if they think they may not stay in the property long enough for the resulting savings to cover the upfront costs.
Commercial Property Assessed Clean Energy Programs
Commercial property assessed clean energy (C-PACE) programs exist in several states, regions, and local governments. Programs vary across several dimensions including the level of organization (statewide vs. local programs), financing structures, and eligible measures. More than 30 states plus the District of Columbia have C-PACE enabling legislation and more than $500 million in projects have been financed.
Commercial PACE Working Group
The Commercial PACE Working Group is a cohort of state and local governments working together to learn about, launch, and refine C-PACE financing programs. This DOE initiative will leverage technical assistance from leading C-PACE experts and market partners to:
- Develop tools and solutions to barriers facing state and local governments
- Convene and create peer exchanges to showcase public-sector leadership and effective public-private partnerships
- Provide information from leading technical experts.
The goal of these efforts is to stimulate $60 million in C-PACE investments by 2022.
Residential Property Assessed Clean Energy Programs
Residential PACE allows homeowners to finance energy efficiency, renewable energy and other eligible improvements on their homes using private sources of capital. PACE programs are typically enabled through state legislation, and authorized at the local government level. Municipalities may directly administer residential PACE programs, or through public-private partnerships with one or more PACE providers.
As of 2017, over 150,000 homeowners have made $4 billion in energy efficiency and other improvements to their homes through PACE financing. Typical home improvement projects include replacement of broken or failing heating and cooling systems and hot water heaters; air sealing and insulation; ENERGY STAR doors, windows, roofing; ENERGY STAR appliances; solar photovoltaic systems; and water conservation and resiliency measures (e.g., seismic retrofits and wind hazard protection). Residential PACE financing programs are currently available in the following states:
- California (10 active programs)
- Florida (4 active programs)
- Missouri (3 active programs)
Best Practice Guidelines for Residential Property Assessed Clean Energy Financing
DOE's Best Practice Guidelines for Residential PACE Financing Programs (published Nov. 18, 2016) outline best practices that can help state and local governments, PACE program administrators, contractors, and other partners develop and implement programs and improvements that effectively deliver home energy and related upgrades through residential PACE. The guidelines are an update to a 2010 version, “Guidelines for Pilot PACE Financing Programs,” and supersede its recommendation.
The guidelines focus on best practices for program design, including consumer and lender protections; compatibility of residential PACE with other energy efficiency programs and services; minimum contractor requirements and performance standards; and evaluation of program outcomes, including cost effectiveness, energy savings, and non-energy benefits such as improved health and comfort.
DOE encourages existing and prospective residential PACE financing programs to use these guidelines to design programs that meet the specific needs of their states and communities.
States and local governments are also developing and implementing guidelines for PACE programs, including regulations that address homeowner and property eligibility, consumer disclosure policies and requirements, contractor oversight and licensing, dispute resolution, and enforcement and compliance procedures.
- Lesson in Commercial PACE Leadership: The Path from Legislation to Launch
- C-PACE: Fact Sheet for State and Local Governments
- Guide to Commercial PACE Financing
- PACE Webinars
- West Palm Beach - Better Buildings Challenge & PACE
- DOE Best Practice Guidelines
- Better Buildings Residential Programs Solution Center
- Home Energy Score
- Better Buildings Residential Network
- Peer exchange call: The Return of Residential PACE, the Sequel (July 21, 2016)
- Allows for secure financing of comprehensive projects over a longer term, making more projects cash flow positive.
- Spreads repayment over many years, seldom requires an upfront payment, and removes the requirement that the debt be paid at sale or refinance.
- Can lead to low interest rates because of the high security of loan repayments attached to the property tax bill.
- Helps some property owners deduct payments from their income tax liability.
- Allows municipalities to encourage energy efficiency and renewable energy without putting general funds at risk.
- Taps into large sources of private capital.
- Available only to property owners.Cannot finance portable items (screw-in light bulbs, standard refrigerators, etc.).
- Can require dedicated local government staff time.
- May require high legal and administrative setup obligations.
- Not appropriate for investments below $2,500.
- Potential resistance by lenders/mortgage-holders whose claims to the property may be subordinated to the unpaid assessment amount should the property go into foreclosure.