Financing Green Improvements with Property Assessed

Clean Energy (PACE)

Peter Adamczyk | Energy Finance and Development ManagerApril 14, 2010

• For 150+ energy finance programs, participation has been < 0.5% per year

• Energy financing programs mostly serve those who least need them

• Short-term consumer financing (less than 7 years) is not effective unless there are substantial subsidies

• Positive cash flow is key

It reduces the risk perceived by lenders

It supports loans to those who would be judged unable to meet debt obligations without promised savings

Why do we need PACE?

• Voluntary mechanism allowing individuals to opt in to a special assessment district created by their municipality

• Eligible energy efficiency and / or renewable energy improvements are funded by taxable municipal bonds or other municipal debt

• Repayment period up to 20 years—may not exceed projected life of improvements

• Special assessment fees transfer to the new owner when the property is sold, or assessment obligation can be paid in full at time of transfer

How does PACE work?

PACE financing authorized

Source: www.dsireusa.org

CA: 2008

NM: 2009

CO: 2008

WI: 2009VT: 2009

18 states authorize PACE (16 states have

passed legislation and two states

permit it, based on existing law)

MD: 2009

VA: 2009

OK: 2009

TX: 2009 LA: 2009

IL: 2009 OH: 2009NV: 2009

OR: 2009 NY: 2009

NC: 2009

FL: Existing Authority*HI: Existing

Authority*

Where PACE has been authorized

• The cost of the project financed through PACE cannot

exceed 10-15% of the assessed value of the property

• The loan-to-value ratio of any outstanding mortgages,

plus the amount of the PACE assessment, cannot

exceed 80-100% of the assessed property value

• Residential properties generally capped at $20,000 to

$40,000

• Repayment period 15-20 years—may not exceed projected life of improvements

Typical PACE program parameters

Financing Source

Town’sPACE Program

PropertyOwner

Property Owner

Property Owner

Property Owner

Property Owner

How PACE money flows

Opts In Opts In Opts In

• Lien position- first mortgage- subsequent mortgages/liens

• Default procedures- non-payment or partial payment- loan loss reserves- Foreclosure –current vs. accelerated payoff

• Transfer of PACE lien at sale- limited experience shows many liens are paid off- difficulty in establishing value of improvements

Implementation issues

PACE lien position

PACE assessments, like

all special

assessments, are

typically subordinate to

property taxes and

senior to mortgages

• Demand for PACE bonds- Taxable bond market is very small- Natural fit for retirement accounts

• Lack of standardization- Lien status- Loan-to-value- Savings to investment (SIR) ratio

• Economies of scale- back office services- financing

Obstacles to growth of PACE

• White House Policy Framework for PACE

Financing Programswww.whitehouse.gov/assets/documents/PACE_Principles.pdf

• PACENOWwww.pacenow.org

• Database of State Incentives for Renewables &

Efficiencywww.dsireusa.org/documents/summarymaps/PACE_Financing_Map.ppt

• Guide to Energy Efficiency & Renewable Energy

Financing Districts for Local Governmentshttp://rael.berkeley.edu/financing/resources

Additional PACE resources

Peter Adamczyk

Energy Finance and Development Manager

Vermont Energy Investment Corporation

802-488-7631

padamczyk@veic.org

More information