July 30, 2010 - what is PACE financing?

Friday, July 30, 2010

Solar energy in action over Bush Key in the Tortugas, off Florida.

Today, a look at a tool that can be used to help finance renewable energy or energy efficiency projects: PACE.

What is PACE financing?

PACE, short for "Property Assessed Clean Energy", refers to one policy mechanism available to support the development of more renewable energy and energy efficiency projects. Essentially, a property owner can borrow money (often at low rates through municipalities) to develop the project; the property owner then pays back the loan through your property tax bills over a long time (often 15 to 20 years). If the property changes hands, so do the energy improvements -- and so does the PACE loan obligation.

This idea, which started in Berkeley, California, is one way to help finance renewable generation or energy efficiency retrofits. Municipalities can raise money through bond issues, generally with no recourse to the municipality. PACE thus represents a new twist on an old tool: land-secured special financing districts.

Landowners like PACE too. Repayments are designed to have a smaller footprint than the cost of the energy saved; homeowners or businesses thus see their expenses go down, even while spending capital to improve their building energy efficiency.

One challenge that has arisen is that mortgage-market megaplayers Fannie Mae and Freddie Mac have expressed concerns about the security of PACE loans because they aren't necessarily subordinate to mortgages. Existing lenders are worried that landowners' PACE obligations to municipalities may trump lenders' mortgage interests in the property. This may be easy to fix, as Maine has done by making PACE loans subordinate to existing mortgages. However, without federal-level action (and the Senate energy bill doesn't include PACE at the moment) the lenders' resistance is throwing a bit of a wet blanket on the opportunities posed by PACE.

Here's an interesting High Country News article about dams in the American West, covering issues including dam failure and flooding, dam removal, fish passage, and energy policy.

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