It’s Baaaaack! PACE financing seems to be making a comeback. What does this mean for the residential solar market?
From California to the New York Island, PACE is making a comeback.The PACE (Property Assessed Clean Energy) financing mechanism was first pioneered by the City of Berkeley for its residential owners in 2008 and has since spread to over 30 states.
To date, over $200 million in commercial and residential PACE has been financed. PACE improves access and affordability to clean energy and water projects. The programs allow homeowners to borrow money for energy efficiency upgrades, such as installing solar panels and to repay the loan in installments with their property taxes.
When the Federal Housing Finance Agency expressed concern with PACE financing in 2010, declaring that the loans posed an unacceptable risk to consumers, the program practically ceased to exist and for a long time, there had been very few residential PACE deals.
However, there appears to be a renewed interest in the PACE model. With the rebound in the housing market there is a lower risk of mortgage defaults. Also, prices have dropped on a number of energy-efficiency upgrades, which leads to smaller loans and further decrease in risk. For instance, the cost of solar panels has dropped more than 70% since 2007, making solar installations significantly more affordable now than they were when PACE financing was first introduced.
Here’s a look at the some of the innovative ways that local governments are using the PACE mechanism to promote solar sales in their communities. To keep up to date on the status of PACE programs throughout the county, check out PACEnow, which is monitoring PACE legislation and implementation. The following states have the most comprehensive programs in place at this time.
California is getting ready to launch the largest PACE program in the US to date. The CaliforniaFIRST residential PACE program is set to begin in 17 counties and 167 cities this summer. The program will be adminsitered by Renewable Funding, and operated under the California Statewide Communities Development Authority. Through this program, homeowners will be able to choose a contractor and install a custom-tailored clean energy project—including the purchase and installation of HVAC systems, solar panels, low-flow toilets, home insulation, windows, and roofs.
The property owners’ repayment is secured through a special tax assessment repaid by the homeowner through the property tax bill over up to 20 years. Earlier this month, California Governor Brown and State Treasurer Lockyer announced key actions to create a PACE mortgage loss reserve program to address concerns raised by mortgage entities. Administered by the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA), the loss reserve program will refund mortgage holders from losses associated with a PACE lien on the property.
In announcing the reserve program, Governor Brown commented, “PACE enables homeowners to buy solar panels, install low-flow toilets and make other smart investments that save energy and water without breaking the bank. As California confronts a severe drought and a rapidly changing climate, this program gives homeowners another opportunity to do their part.”
“We are thrilled to launch the PACE residential program to help homeowners keep more money in their pockets,” said Cisco DeVries, CEO of Renewable Funding. “We especially want to thank Governor Brown and State Treasurer Lockyer for their work to again make this public-private partnership possible. With California in a severe drought and facing higher energy costs, this is a win-win in the truest sense. Homeowners throughout the state will now have more options to lower their energy and water bills and generate clean energy.
In San Bernardino, for instance, the Home Energy Renovation Opportunity, or HERO, program is a branded version of PACE administered by Ambassador Energy. For solar customers who want other finance options, Ambassador Energy also offers purchases, loans, and leases. “We strive to offer finance choices for our customers, not pigeon-hole them into a one-size-fits-all solar offering,” said Kelly Smith, president of Ambassador Energy. “We also offer the opportunity for military veterans and civilian contractors to learn solar through our education arm, Ambassador Energy College, where we train students on everything from the basics, to solar sales, to advanced solar theory.
Another state providing a framework for local governments to offer PACE is Florida. Florida is providing a subscription service for the localities. Ygrene’s Clean Energy Green Corridor, serving Miami and South Florida, is one example of how this is being implemented in the sunshine state.
Efficeincy Maine is the name of Maine’s statewide energy program, which allows homeowners and businesses to apply directly through the state government. The progrman is administered through an independent trust. This program differs from many others because it does not assess a property tax, but rather provides a low-interest loan that stays with the property, not the homeowner.
Michigan has created a public-private parntership, Lean and Green Michigan, to promote statewide solar efforts. Through this innovative program, cities, counties, and townships sponsor a ” PACE district” but don’t take on any cost or risk. A municipality joins the Lean and Green program, and then PACE projects are funded through parntnerships with banks and investors to provide financing on individual projects. A PACE district allows a property owner to use the property tax mechanism to finance energy improvements. The property owner voluntarily takes on a Special Assessment, which it pays off as part of its property tax bill.
Like Michigan, Missouri has created a statewide process for a PACE programs, called the Missouri Clean Energy District. Cities need only pass an ordinance to start the process. Then, property owners in member communities and counties may apply for PACE financing for energy-saving upgrades and retrofits to their property. There is no membership cost to local governments and no risk, because no public funds are used for financing. However, the entire program does receive government oversight.
Efficiency Vermont is a more traditional PACE program, with homeowners taking loans through their municipalities that remain with the property. The difference in the Vermont program is that in Vermont, the PACE loans are subordinate liens. That is, they are not given a lien priority over the primary mortgage.
In Wisconsin, the Milwaukee Energy Efficiency Me2 program is a partnership between the U.S. Department of Energy, the Milwaukee Office of Environmental Sustainability, and Wisconsin’s Focus on Energy program. One financing option they offer is traditional PACE financing.
Last but not least, we come to the state of New York. Energize New York is a community-based program funded by grants from the Department of Energy and the New York State Energy Research and Development Authority.