Property Assessed Clean Energy

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Property Assessed Clean Energy (PACE) is a form of land-secured financing designed to enable local governments to finance improvements in the public interest. As the name implies, the scope of PACE financing extends to renewable energy and energy efficiency projects on private property, including residential, commercial and industrial properties¹. The goal of the program is to stimulate investment in these technologies, leading to increased energy independence, reduction in greenhouse gases, and a more sustainable energy economy. PACE is an attempt to provide an innovative method to finance such retrofitting that allows individuals to retain current levels of energy comfort (the ability to heat, cool and light homes, and to heat water) without undue financial hardship, while simultaneously adding value to property. It eliminates the main barrier to clean energy installations: the large upfront cost.

How It Works

PACE financing works through local governments. In areas where the legislation is in place municipality governments may offer a bond to investors, who then loan the money to consumers to put towards a clean energy retrofit. The loan is repaid over an assigned term, usually 20 years, through an annual assessment on the property's taxes. One innovative aspect of the program is that a PACE loan is attached to the property rather than an individual. Once the property is retrofitted, the owner will begin to benefit from energy savings even as the loan is still being paid back. Thus, the possibility exists that the owner will see significant net savings over time. This makes the program attactive; however, these savings are dependent on the owner using the property for an extended period of time. Otherwise the property must be sold at a premium, taking into account the cost of the outstanding loan. This can act as a barrier to selling the property.²

History

The first legislation to enable PACE financing emerged in 2008 with the passage of legislation in California. The following states following suit: Colorado, Illinois, Louisiana, Maryland, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Texas, Vermont, Virginia, and Wisconsin. Legislation is pending in Arizona and New York, and Florida and Hawaii have the existing ability to launch PACE programs. The first PACE bond was issued by Berkeley, CA in January, 2009.³