Property Assessed Clean Energy (PACE)

Property Assessed Clean Energy (PACE) financing is an attractive, long term financing option for commercial and residential property owners wishing to make investments in energy efficiency and/or renewable energy.
Photo credit: Oregon DOT via Flickr

PACE was designed not only to encourage the installation of renewable-energy systems and improve building energy efficiency, but also to help property owners overcome the barrier of high up-front energy equipment and installation costs.

While PACE financing does not reduce the total price tag of an Energy Conservation Measure (ECM), such as solar panels, a new chiller, lighting upgrade or other renewable energy system, the 100% financing combined with low cost, long-term financing helps make such measures affordable.

Commercial PACE

PACE financing effectively allows real estate owners to make investments in cash flowing improvements such as renewable-energy systems and/or energy-efficiency measures that are repaid over up to 20 years through a property tax assessment.

It is estimated that millions of commercial buildings throughout the United States have deferred maintenance due to lack of capital for investment, or a lack of will by management to commit to capital improvements. Meanwhile, commercial property mechanical systems break down, roofs deteriorate, elevators wear out, and lighting systems become outdated. All the while utilities steadily increase the cost of our energy, electricity and water.

Before PACE, the "old" way of making capital improvements to a property often required enduring negative cash flow. Building owners either committed to investing their own cash out of pocket, or took on incremental debt in the form of short term bank financing. In either case, the return on investment (ROI) associated with the capital improvements was forecasted to occur well into the future, if ever.

With PACE financing, the economic benefits of energy conservation often outweigh the costs of the conservation measures over their expected useful life (EUL). Instead of coming out of pocket to fund necessary capital improvements to experience negative cash flow, owners see positive cash flow and no out of pocket costs. In some states with PACE programs, such as Connecticut PACE (CPACE), the capital expenditures must generate positive cash flow in year one to be approved.

Summarizing PACE Benefits

In addition to reducing, or eliminating completely, the upfront costs of renewable energy and/or energy-efficiency improvements, PACE financing offers additional financial benefits for property owners including MACRS depreciation for renewable energy investments, the Business Energy Investment Tax Credit, off-balance sheet loan structure and non-recourse terms.

Because PACE financing is repaid through a special assessment on property taxes, the repayment obligation of the energy efficiency improvements runs with the property itself. Thus, if a commercial property owner participating in a PACE program sells the property within the repayment term of the lien, the special assessment legally transfers with the property to the new owner.

The many benefits of PACE to CRE owners may include:

  • 100% up front financing for energy efficiency improvements
  • Long term fixed rate financing (10, 15 or 20 years)
  • Positive cash flow for CRE owners
  • Business Energy Investment Tax Credit benefit
  • MACRS depreciation (for renewable energy investments)
  • Loans tied to the tax capacity of the property rather than to the owner’s credit standing
  • Off balance sheet financing
  • A repayment obligation that legally transfers with the sale of the property

Cities or counties may use their bonding authority to finance programs. PACE programs does not impact state budgets, local budgets or general funds; the administrative costs are typically covered by bond issuance and interest paid by property owners participating in the program. 

The following video, provided by PACENow.org, an advocate for property assessed clean energy, presents the benefits of PACE in 90 seconds:

 

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