In “San Francisco Getting Back On The PACE Wagon!“, Zachary Shahan, director of CleanTechnica and Planetsave, writes that “(PACE) financing is one of the awesomest clean energy programs out there.” In explaining it to township committees, energy contractors, property owners, and sustainability-oriented lenders and investors, we’re finding the same thing: it’s hard to find a downside to the program.
This is because the property owner gets the benefits of energy savings without the upfront investment costs; the investor gets a very secure revenue stream, collected by the municipality along with property taxes; and the municipality gets jobs, economic development, and business attraction and retention program at no cost to taxpayers.
If there are negatives to the program, they’re hard to find. One is implied, however, by Shahan’s initial description:
1) your solar power system (or energy efficiency upgrade) is financed through government-issued bonds*; 2) you pay the bonds back through higher property taxes for a decade or two to come; 3) you save more money on your electricity bill from day 1 than you pay in higher property taxes. Furthermore, if you decide to sell your [property], the beneficial system just carries over to the new owner.
The asterisk is because most programs today do not actually use government bonds for financing the projects; it’s much easier to use private funding directly, without selling the bonds to investors, and then figuring out how to do the interim funding needed to get enough projects completed in order to fully utilize the bond issue. Most towns do not want issue bonds anyway; they can’t be “general obligation” bonds, since they’re being used for private financing, and taxpayers don’t want to approve them. Tying a PACE program to bond financing tends to limit its applicability, increase its costs, and make it cumbersome if not impossible to develop real momentum.
Other challenges include educating municipalities and mortgage lenders and getting their approval; projects need to be reviewed, documented, and approved by multiple parties; and only the largest projects are likely to get funded initially, until program procedures can be streamlined and routinized.
Still, it’s hard to find an argument as to why a municipality should not adopt the program, or why property owners would refuse an offer to “pay them [in energy savings] to improve their properties.” In a state where most people are skeptical of something that seems too good be true, it’s hard to convince folks that you really can align public and private interests, and generate “climate wealth” from the anticipation of extreme weather, power outages, and rising energy costs.
Shahan also notes the continuing controversy in Washington over the earlier residential versions of the program, which were opposed by Fannie Mae and Freddy Mac and their overseer, the Federal Housing Finance Agency (FHFA).
PACE financing started in Berkeley in 2008. In 2009, Vice President Joe Biden planned to roll it out across the United States. Then, in 2010, the Federal Housing Finance Agency cut the program off at the knees all across the nation with the claim that the loans posed an unacceptable risk to mortgage lenders, even though the program allowed homeowners to cut their electricity bills and electricity is one of the last things people decide to stop paying when in financial difficulties. The argument was based on the fact that the PACE loans attached to the properties as liens, which would make paying them back a priority over paying back mortgage lenders.
Despite no change in perspective on behalf of the Federal Housing Finance Agency, PACE programs have started to resurface across the US, including in the giant and sunny states of Florida and California. In the case of California, a $10 million fund has been set aside just in case a bank forecloses on a home with PACE-funded solar or energy efficiency improvements in order to take care of any losses that federal agencies would face in that case.
There’s also hope that a new FHFA director, North Carolina Rep. Mel Watt, will revise the policy, since in reality PACE programs improve the value of the mortgage lender’s collateral and make it easier for property owners to pay their mortgages, because they’re saving money on their energy bills.
In any event, notes Shahan,
Notably, over 100 California cities have implemented PACE through the HERO Program, part of Renovate America, which was set up in response to the death knell to conventional PACE programs that was delivered by the Federal Housing Finance Agency. In April, as we reported at the time, the number was 41. In Western Riverside County, California, where HERO (which stands for Home Energy Renovation Opportunity) was launched in 2011, over $100 million worth of projects have been approved, involving over 530 contractors and created an estimated 2,500+ jobs. Talk about an economic success story!
In Connecticut, which has a government-backed program with paid staff and a $20 million revolving loan fund aimed at commercial and industrial projects only, more than $75 million in projects have been lined up in just eleven months. In New Jersey, nearly twice the size physically and with more than double the population, and with only a grassroots program, similar results might take a little longer to materialize, but in the end NJ’s program will likely surpass Connecticut’s in size and scope. With the anticipated passage of new legislation, NJPACE is also expected to be able to finance a wide range of resiliency improvements as well as clean energy initiatives.