Pace slides
- 1. What is PACE financing and how does it work?PropertyAssessedCleanEnergy PACE financing allows property owners to pay for energy efficiency, renewable energy, and/or water efficiency projects via an additional assessment on their property tax bill over a 5-20 year term. PACE is also referred to as “tax-lien financing”Provides capital to fund energy retrofitContractorreceives funds to do retrofitPays special assessment on property tax billCapital improvements that saves energy costsProperty OwnerLocal Tax EntityContractor/ESCOProperty owners in a cash flow positive position1Johnson Controls - Overcoming Financial Barriers to Energy Efficiency
- 2. PACE model overcomes some significant challenges2Johnson Controls - Overcoming Financial Barriers to Energy EfficiencySpread cost over 5-20+ yearsScarce internal capital budget Repayment security thru senior lien position rather than borrower’s credit
- 3. Backed by property, not by owner or equipment collateral
- 4. Local governments provide scale
- 5. Low rates due to security / policy
- 6. May be treated off balance sheetNo access to or aversion to financingNo investment-grade credit rating
- 7. Lack of collateral assets that don’t fall under first mortgage
- 8. Limited # of lenders experienced in financing energy efficiency/renewables
- 9. Rates exceed internal cost of capital
- 10. Balance sheet concernsTransfers upon sale, turnoverUncertain holding periodQualifies as NNN pass-thru costOwner / tenant split incentivesContractor may guarantee savingsSkepticism re savings/ROI
- 11. Why is PACE going viral?3Benefits to Building OwnersBenefits to Local GovernmentsBenefits to Retrofit InvestorsBenefits to First MortgageesBenefits to ESCOs / ContractorsGame-changing for private sector investmentVery secure payback mechanismNo upfront cash neededPositive cash flow improves property owner’s ability to service liabilitiesSupport local business and job creationCompetitive cost of capitalSecuritizes energy efficiency (2ndary markets)Longer payback projectsReduces city’s largest carbon footprint segment: existing buildingsSolves credit rating, collateral issuesIncrease valuation and marketability of assetMortgagees prefer performance guaranteesDiversification via “pooled bond”May be off balance sheetAnnual assessment payment is senior to mortgage in defaultTax neutral; no risk to the general fundAllows owners to pass thru retrofit costs to tenantsHarnesses markets to scale capital inflowFederal loan guarantees are likelyJohnson Controls - Overcoming Financial Barriers to Energy Efficiency
- 12. What makes PACE financing different?4One of ‘s “10 breakthrough ideas for 2010”One of ‘s “20 world changing ideas to build a cleaner, healthier, smarter world”Johnson Controls - Overcoming Financial Barriers to Energy Efficiency
- 13. Spreading quickly: 26 states currently allow local governments to create PACE programs5*************************************Hawaii and Florida are believed to have pre-existing authority but have introduced HB2643 (HI) and HB 7179 (FL) just in case.Note: list of emerging program is not exhaustive
- 14. The evolution of commercial PACE6First commercial PACE program: Sonoma County, CA (2009)
- 15. First project: Simon Property Group, Santa Rosa Plaza cool roof upgrade
- 16. Commercial program launched in March 2010 application deadline
- 17. $3k-$210k loan sizes, 5-10 year loan periods, 5-7% rate
- 18. Program currently suspended$150M in bonding capacity. Residential program suspended but commercial program remains open for applications.Wisconsin Energy Efficiency (WE2) Project: Milwaukee, Madison, Racine
- 19. Commercial PACE (owner-arranged financing) to launch in March 2011
- 20. Awarded ARRA State Energy Program grant and EECBE Retrofit Ramp-up grant to create a commercial PACE program using the “owner-arranged financing” approach
- 21. Expected program launch in July 2011
- 22. “National Capital Energy Finance Administration”
- 23. Legislation passed by Council on February 16, 2010
- 24. Program still in development; Launch TBDWashington, DC
Editor's Notes
- #6: City of Berkeley concluded its pilot program but since it was active, its denoted by a black marker.