PACE financing

Property Assessed Clean Energy (PACE) is a means of financing energy efficiency upgrades or renewable energy installations for residential, commercial and industrial property owners. Depending on state legislation, PACE can be used to finance water efficiency products, seismic retrofits, and hurricane preparedness measures. Examples of energy efficiency and renewable energy upgrades range from adding more attic insulation to installing rooftop solar panels for residential projects and chillers, boilers, LED lighting and roofing for commercial projects. In areas with PACE legislation in place, governments offer a specific bond to investors or in the case of the open-market model, private lenders provide financing to the building owners to put towards an energy retrofit. The loans are repaid over the selected term (over the course of somewhere between 5 and 25 years) via an annual assessment on their property tax bill. PACE bonds can be municipal financing districts, state agencies or finance companies and the proceeds can be used to retrofit both commercial and residential properties. One of the most notable characteristics of PACE programs is that the loan is attached to the property rather than an individual.

PACE can also be used to finance leases and power purchase agreements (PPAs). In this structure, the PACE property tax assessment is used to collect a lease payment of services fee. The primary benefit of this approach is that project costs may be lower due to the provider retaining the tax incentives and passing the benefit on to the property owner as a lower lease or services payment.

PACE programs help home and business owners pay for the upfront costs of green initiatives, such as solar panels, which the property owner then pays back by increasing property taxes by a set rate for an agree upon term ranging from 5–25 years. This allows property owners to begin saving on energy costs while they are paying for their solar panels. This usually means that property owners have net gains even with increased property tax.

Voluntary assessments for repaying municipal bonds have been attached to property taxes since the early 1800s to fund projects for public good such as sidewalks, fire stations, and street lighting. PACE uses the same concept, but for projects that benefit the private sector, or individual building owners. PACE was originally known as a "Special Energy Financing District" or "on-tax bill solar and efficiency financing." The concept was first conceived and proposed in the Monterey Bay Regional Energy Plan in 2005 but followed voter approval of a similar solar bonds program approved by San Francisco voters in 2001. The concept was designed to overcome one of the most significant barriers to solar and costly energy efficiency retrofits: up-front costs. A homeowner could spend tens of thousands of dollars on a solar photovoltaic system, upgrading windows to be more energy efficient or adding insulation throughout the home, yet all of these investments would not likely be recovered when the home was sold. PACE enables the homeowner to "mortgage" these improvements and pay only for the benefits they derive while they own the home.

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Wikipedia