Forgot Password?
Written by William Klein   
Share |
Tuesday, 10 January 2012

PACE Programs

What if somebody told you that they could practically guarantee to reduce both your monthly bills and your impact on the environment at the same time? You might scratch your head since it seems everyone is always telling you that going green is only for the rich folk. Well, it seems you might be able to have your cake and eat it too with the launch of recent financing innovations to help pay for energy efficiency upgrades to your home or business. The most well-known of these recent financial innovations is Property Assessed Clean Energy, or PACE for short.

How PACE Works
PACE is pretty straightforward. First, you have an experienced contractor audit your home for potential energy savings. Second, the auditor will provide you with an estimate of upfront costs and expected future savings. Finally, in order to bridge the difference between these upfront costs and future savings, an institution—typically either a local government or more recently, a private lender—will lend you money to pay for the installation. However, instead of a typical loan, this is backed by a lien on your building, and the loan is paid back through your property tax bill.

Challenges for PACE
Of course, something that sounds as straightforward as PACE has to be too good to be true, and in fact, up until recently it has seen its fair share of difficulties. Berkeley, California piloted a PACE program back in 2008 under a solar financing initiative.1 The city sold bonds to pay for the upfront costs of the solar installations, with the homeowners using the value of their homes to back their loan from the city. The homeowners then agreed to pay a voluntary tax, in which they paid the city a calculated rate that was below their traditional utility bill charge, but included enough interest for the city to pay back the bonds. The basic PACE model creates local green jobs, and has significant potential to reduce a locality’s reliance on fossil fuels.

Now for the bad news… the housing bubble burst in the late 2000s, resulting in the foreclosure of many homes and deep financial crisis felt across the world. Freddie Mac and Fannie Mae are responsible for backing federal mortgages, as enabled through federal policies encouraging home ownership. Following the foreclosure crisis, these two giants let it be known that they no longer would allow for homeowners to put a lien on their homes for PACE financing, because the lien took precedence over a homeowner’s mortgage payments.3 In essence, if a homeowner went bankrupt, the city could take control of their house before Freddie or Fannie Mac could receive the mortgage payments. This put a screeching halt to the PACE financing program.

There is good news too. Despite the hurdles in the residential real estate market, commercial investors are discovering the significant financial gain to be realized through PACE investments. These investors have shifted their focus to commercial buildings, which don’t have to deal with Freddie and Fannie. Private investors are now acting to issue the bonds, which was previously the role of local governments. The most prominent example of this is the recent announcement by Richard Branson’s Carbon War Room of a $550 million investment in the cities of Sacramento, CA and Miami, FL. The New York Times explained the set- up thoroughly, with the following description:
Short-term loans provided by Barclays Capital will be used to pay for the upgrades. Contractors will offer a warranty that the utility savings they have promised will actually materialize, and an insurance underwriter, Energi, of Peabody, Mass., will back up that warranty. Those insurance contracts, in turn, will be backed by Hannover Re, one of the world’s largest reinsurance companies. [] As projects are completed, the upgrade loans, typically carrying interest rates of 7 percent, will be bundled into long-term bonds resembling those routinely issued by governmental taxing districts. Barclays will market the bonds. Retirement funds have expressed interest in buying these bonds, which will be repaid by tax surcharges on each property that undergoes a retrofit.4
The next key hurdle will be to create a certification program for contractors so they can prove that the actual savings resulting from their work match their estimates. Again on the positive side, cities such as San Francisco and Los Angeles have recently announced their own PACE programs.5 The San Francisco project is using a privately funded solar project in Sonoma, California, which may also allow Sonoma homeowners to tap into a PACE program!6

Future of PACE
The future of PACE may need to be more private-sector driven, but hopefully the benefits of PACE programs will be substantial and allow local governments to get back into the game and make these programs more universally accessible. Another part of this discussion is the intersection of community improvement and property taxes. Property tax assessments traditionally do receive seniority in case of default, and there is a 100 year tradition of local governments charging its taxpayers for community improvements via property taxes. These improvements are things such as sidewalk and road infrastructure, and they are put into property tax bills on the premise that these improvements increase property values.7 Perhaps one day green energy investment will be considered an improvement to the community that also increases property values?

Browse all Greeniacs Articles Browse all Greeniacs Guides        Browse all Greeniacs Articles
_______________________________________________________________________________

1 http://www.ci.berkeley.ca.us/contentdisplay.aspx?id=26580
2 http://www.forbes.com/sites/eco-nomics/2011/11/01/energy-
    efficiency-financing-could-create-jobs-says-new-report/
3 http://online.wsj.com/article/SB10001424052748704534904575132123115802584.html
4 http://www.nytimes.com/2011/09/20/business/energy-environment/
    tax-plan-to-turn-old-buildings-green-finds-favor.html
5 http://pacenow.org/blog/
6 http://www.northbaybusinessjournal.com/40012/first-third-party-commercial-pace-funding-approved/
7 http://online.wsj.com/article/SB10001424052748704534904575132123115802584.html




Add your comment
RSS comments

Only registered users can write comments.
Please login or register.

Click here to Register.  Click here to login.
Last Updated ( Tuesday, 10 January 2012 )

SEARCH GREENIACS.COM

Green Facts

  • For every 38,000 bills consumers pay online instead of by mail, 5,058 pounds of greenhouse gases are avoided and two tons of trees are preserved.

  • Plastic bags and other plastic garbage thrown into the ocean kill as many as 1,000,000 sea creatures every year.

  • Recycling 1 million laptop computers can save the amount of energy used by 3,657 homes in the U.S. over the course of a year.

  • A tree that provides a home with shade from the sun can reduce the energy required to run the air conditioner and save an additional 200 to 2,000 pounds of carbon over its lifetime.

  • Less than 1% of electricity in the United States is generated from solar power.

  • Recycling 100 million cell phones can save enough energy to power 18,500 homes in the U.S. for a year.

  • 77% of people who commute to work by car drive alone.

  • Due to tiger poaching, habitat destruction, and other human-tiger conflicts, tigers now number around 3,200—a decrease in population by about 70% from 100 years ago.

  • One recycled aluminum can will save enough energy to run a 100-watt bulb for 20 hours, a computer for 3 hours, or a TV for 2 hours.

  • It takes 6,000,000 trees to make 1 year's worth of tissues for the world.

  • American workers spend an average of 47 hours per year commuting through rush hour traffic. This adds up to 23 billion gallons of gas wasted in traffic each year.

  • An aluminum can that is thrown away instead of recycled will still be a can 500 years from now!

  • Turning off the tap when brushing your teeth can save as much as 10 gallons a day per person.

  • Recycling aluminum saves 95% of the energy used to make the material from scratch.

  • Americans throw away enough aluminum to rebuild our entire commercial fleet of airplanes every 3 months

  • If every U.S. household turned the thermostat down by 10 degrees for seven hours each night during the cold months, and seven hours each weekday, it would prevent nearly gas emissions.

  • You will save 300 pounds of carbon dioxide for every 10,000 miles you drive if you always keep your car’s tires fully inflated.

  • Bamboo absorbs 35% more carbon dioxide than equivalent stands of trees.

  • A single quart of motor oil, if disposed of improperly, can contaminate up to 2,000,000 gallons of fresh water.

  • You will save 100 pounds of carbon for each incandescent bulb that you replace with a compact fluorescent bulb (CFL), over the life of the bulb.

  • Refrigerators built in 1975 used 4 times more energy than current models.

  • Americans throw away more than 120 million cell phones each year, which contribute 60,000 tons of waste to landfills annually.

  • Washing your clothes in cold or warm instead of hot water saves 500 pounds of carbon dioxide a year, and drying your clothes on a clothesline six months out of the year would save another 700 pounds.

  • Americans use 100 million tin and steel cans every day.

  • Shaving 10 miles off of your weekly driving pattern can eliminate about 500 pounds of carbon dioxide emissions a year.

  • In the United States, automobiles produce over 20 percent of total carbon emissions. Walk or bike and you'll save one pound of carbon for every mile you travel.

  • The World Health Organization estimates that 2 million people die prematurely worldwide every year due to air pollution.

  • A steel mill using recycled scrap reduces related water pollution, air pollution, and mining wastes by about 70%.

  • Glass can be recycled over and over again without ever wearing down.

  • Rainforests are being cut down at the rate of 100 acres per minute.

  • Every week about 20 species of plants and animals become extinct.

  • You’ll save two pounds of carbon for every 20 glass bottles that you recycle.

  • A laptop consumes five times less electricity than a desktop computer.

  • Current sea ice levels are at least 47% lower than they were in 1979.

  • Nudge your thermostat up two degrees in the summer and down two degrees in the winter to prevent 2,000 pounds of carbon dioxide from entering the atmosphere.

  • In California homes, about 10% of energy usage is related to TVs, DVRs, cable and satellite boxes, and DVD players.

  • Recycling for one year at Stanford University saved the equivalent of 33,913 trees and the need for 636 tons of iron ore, coal, and limestone.

  • States with bottle deposit laws have 35-40% less litter by volume.

  • 82 percent of greenhouse gas emissions in the U.S. come from burning fossil fuels.