What is PACE (Property Assessed Clean Energy) and How to Apply?

What is PACE (Property Assessed Clean Energy)

PACE (Property Assessed Clean Energy) is an effective way of financing renewable energy, energy efficiency upgrades, and water conservation upgrades to commercial, residential and industrial property. This financing program base its functions on the land secured financing district also known as assessment district or local improvement district. This body allows the local government to issue a bond to finance public intended projects, like street lighting or sewer and underground developments. However, recent transitions have seen this financing model extend to renewable energy and energy efficiency, which allows property and business owners to make improvements on their premises without an up-front payment, which is not affordable.

PACE can be utilized to fund building efficiency improvements such as cool roofs, hurricane preparedness measures, insulations and air sealing, water efficiency products, and seismic retrofits, depending on State legislation. Some examples of the upgrades are LED lighting and roofing for the commercial projects and adding more attic insulation or installing solar panels on the roofs in residential units.

PACE assists homeowners and business owners to finance renewable energy and energy efficiency projects for their property. It is a voluntary program whereby the business or home owner receives financial aid from his/her local government to take care of the upfront cost of energy improvements. The owner in exchange pays back the cost through a special assessment done on their property tax over a period. This period could be a couple of years or even a couple of decades. The loan is tied to the property and not the owner; which means that in the unfortunate event of foreclosure, the loan repayment is given priority to be repaid before any other claims to the property. The obligation of repayment also stays with the property so that if the owner sells their property, the new owner takes up the responsibility of paying back the loan and assumes ownership of the product. This is beneficial to home and property owners who are ever hesitant in making new changes for fear of moving without first recovering the amount spent on the changes.

The financing is processed just like other local public benefit assessments, sewers, sidewalks, have been processed. It is repaid as an evaluation on individual or company property’s tax bill. It can be used for nonprofit, commercial and residential properties depending on local legislation.

Commercial Property-Assessed Clean Energy Programs

Although not yet fully implemented in all states or regions of the US, some are already enjoying the benefits of commercial PACE programs. The program utilizes the availability of financing bodies to further their course. However, some of the programs are still new and have not yet funded significant volumes. Other places, on the other hand, have seen million-dollar improvements. Boulder County’s Climate Smart Loan Program and the Sonoma County’s Energy Independence Program (SCEIP) are two good examples.

Residential Property Assessed Clean Energy Programs

This type of PACE program has over time received enough criticism and strict regulatory measures. Some domestic PACE operations through the Federal Housing Finance Agency(FHFA) have been suspended. The feeling that PACE programs have a superior lien status than that of an existing mortgage caught the housing finance’s attention. What this meant is that supposing one defaults, all the remaining PACE assessment amount would the prioritized and paid off first before the original deeds of trust, even though it shouldn’t necessarily be the whole financed amount. This stopped several PACE programs except for few pilot ones. Luckily, the commercial sector remains intact.

How Does Pace Work?

It is a national initiative in the US, yet the programs are locally established and are tailor-made to cater to the regional market requirements. Municipalities are authorized by approved state legislation to establish PACE programs. Local governments have in turn developed different program models, which have been implemented successfully. No matter the model, similarities, and points do not change for all PACE programs:

• PACE programs are voluntary for every individual/company involved.
• Loan repayment can go up to 20 years.
• The program can cover 100% of a project’s costs; both hard and soft.
• Energy projects will be permanently fixed to a property regardless of a change in ownership.
• You can combine PACE programs with local, federal and utility incentive programs.

The success of PACE programs

There have been numerous pilot programs in different US states, and they have shown that PACE properties tend to have lower rates of foreclosure, an increase in energy savings and have provided many benefits that are in line with the overall PACE policy objectives. PACE was first introduced in pilot programs in 2008. Today, over 30 states have authorized the launch of PACE programs. These programs have led to creating hundreds of jobs and investment of millions of dollars.

Pace has become so popular among property owners because it enables them to fund projects with no costs from their pockets. Since you can repay the loan in up to 20 years, a property owner can add components to the projects that are comprehensive and have significant energy savings, which significantly impact the result. The energy savings that a PACE project gets annually exceed the annual assessment payment most of the time. This assures the property owner immediate positive cash flow. This gives room for surplus cash that can be used to further other projects or expand the business.

PACE is also a local government favorite because of the low cost of doing business in the community brought about because it is an Economic Development Initiative. It promotes investments by new business owners in the area, and the positive impact that it has on the environment is a plus.

The Application Process

PACE programs are a long-term solution offering private financing for homes and businesses that wish to invest in renewable energy and upgrades to their energy efficiency. In the US, PACE-enabling is currently active in 33 states plus Washington D.C. PACE programs were launched and are operating in 19 stated plus D.C. Presently, residential PACE is offered in the three states of Florida, Missouri, and California.

You can apply for PACE at a state level. Once you have confirmed whether or not your state is PACE active, the next step is to either physically visit or go online.

The application process is relatively simple involving filling in an application form. Here are the application instructions:

1. l out the full online application by downloading the files.
2. Mail or deliver the completed application to the appropriate PACE state offices. You also have the option of emailing the PDF version of your application to your state PACE website.
3. All applications will be processed once received. If you have an incomplete or incorrect application, the application will not be processed. Once re-submitted, the application shall be treated according to the new receipt date.
4. If you submit an online application, you are to receive an email from you state PACE representative within 24hours. If you don’t, contact the office to ensure that your application was successfully submitted and received.
5. You have to apply, get approval and execution before financing is available.
6. Always keep a copy of the completed Aapplication, receipts, documents and paid invoices.
7. If you have any questions regarding your application status, do call or email a PACE representative.

Pros and Cons of PACE

There are advantages and disadvantages when it comes to PACE. Before making the decision, you should weigh them both to ensure that the decision you make is well informed.

Pros

• Loan repayment is stretched out over a period of many years and eases the burden by allowing the sale or refinancing without the requirement of full debt repayment.
• PACE financing is a safe method of funding large scope projects over extended periods of time. This makes more have a more cash flow positive curve.
• Municipalities are allowed to encourage renewable energy and energy efficiency without placing the general funds at risk
• Some property owners get assistance by having the payments deducted from their income tax liability.
• It could lead to low-interest rates since there is high security backing up loan repayments that are linked to the US property tax bill.
• Utilizes large sources of private capital, e.g., municipal bond markets.

Cons

• There is high administrative and legal setup.
• Financing is only available to property owners.
• The loan is not applicable to portable items.
• It may require taking up dedicated local government employee time.
• Investments below $2500 are not suitable.
• Lenders/Mortgage holders may bring in resistance because their claims to the property have lower priority to the outstanding assessment amount in the event of foreclosure.

In as much as the PACE programs continue to grow amidst the few challenges in the residential sector, it still remains unclear whether the department of energy will continue to support the program to ensure further developments. Nonetheless, should the support be unforthcoming, PACE will still be the local and state initiatives that would not depend on the department of energy entirely. It still remains as one of the most revolutionary and potential growth in many states.