PACE Financing
Encyclopedia
PACE stands for Property Assessed Clean Energy. In areas with PACE legislation in place municipality
governments offer a specific bond
to investors and then turn around and loan the money to consumers
and businesses to put towards an energy retrofit. The loans are repaid over the assigned term (typically 15 or 20 years) via an annual assessment on their property tax
bill. PACE bonds can be issued by municipal financing districts 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 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 over about 20 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.
. DeVries saw PACE to provide a viable means to help achieve the Bay Area's climate
goals. California
passed the first legislation
for PACE financing and started the BerkeleyFIRST climate program in 2008. Since then, PACE-enabling legislation has been passed in more than 16 states, allowing localities to establish PACE financing programs. PACE financing for residential properties was dealt a serious blow in 2010 when Fannie Mae and Freddie Mac refused to back mortgages with PACE leins on them.
, PACE can play an important role in reducing local greenhouse gas
emissions, promoting energy efficiency
improvements in its buildings, making the shift to renewable sources of energy
more affordable, and reducing energy
costs for residents and businesses. Because PACE is funded through municipal bonds it creates no liability to the city's funds. PACE programs also help to create jobs and thus spur local economic development
when local solar installers and renewable energy
companies partner with the program. It is also an opt-in program, so only those property owners who choose to participate are responsible for the costs of PACE financing.
PACE enables individuals and businesses to avoid the upfront costs that are the most common barrier to solar installation. The PACE loans are paid with property taxes over a course of roughly 20 years while energy costs are simultaneously lower, providing the PACE consumer with net gains. Also, because the solar panels and the PACE loan
is attached to the property
, the consumer
can sell the property leaving the debt to be paid through the property tax
assessed on the subsequent owners.
Municipality
A municipality is essentially an urban administrative division having corporate status and usually powers of self-government. It can also be used to mean the governing body of a municipality. A municipality is a general-purpose administrative subdivision, as opposed to a special-purpose district...
governments offer a specific bond
Government bond
A government bond is a bond issued by a national government denominated in the country's own currency. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country...
to investors and then turn around and loan the money to consumers
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
and businesses to put towards an energy retrofit. The loans are repaid over the assigned term (typically 15 or 20 years) via an annual assessment on their property tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
bill. PACE bonds can be issued by municipal financing districts or finance companies and the proceeds can be used to retrofit
Retrofit
Retrofitting refers to the addition of new technology or features to older systems.* power plant retrofit, improving power plant efficiency / increasing output / reducing emissions...
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 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 over about 20 years. This allows property owners to begin saving on energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
costs while they are paying for their solar panels. This usually means that property owners have net gains even with increased property tax.
History
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. 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. The first PACE program was implemented by Berkeley, California, led by Cisco DeVries, the chief of staff to Berkeley's mayorMayor
In many countries, a Mayor is the highest ranking officer in the municipal government of a town or a large urban city....
. DeVries saw PACE to provide a viable means to help achieve the Bay Area's climate
Climate
Climate encompasses the statistics of temperature, humidity, atmospheric pressure, wind, rainfall, atmospheric particle count and other meteorological elemental measurements in a given region over long periods...
goals. California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
passed the first legislation
Legislation
Legislation is law which has been promulgated by a legislature or other governing body, or the process of making it...
for PACE financing and started the BerkeleyFIRST climate program in 2008. Since then, PACE-enabling legislation has been passed in more than 16 states, allowing localities to establish PACE financing programs. PACE financing for residential properties was dealt a serious blow in 2010 when Fannie Mae and Freddie Mac refused to back mortgages with PACE leins on them.
Benefits
For a cityCity
A city is a relatively large and permanent settlement. Although there is no agreement on how a city is distinguished from a town within general English language meanings, many cities have a particular administrative, legal, or historical status based on local law.For example, in the U.S...
, PACE can play an important role in reducing local greenhouse gas
Greenhouse gas
A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone...
emissions, promoting energy efficiency
Efficient energy use
Efficient energy use, sometimes simply called energy efficiency, is the goal of efforts to reduce the amount of energy required to provide products and services. For example, insulating a home allows a building to use less heating and cooling energy to achieve and maintain a comfortable temperature...
improvements in its buildings, making the shift to renewable sources of energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
more affordable, and reducing energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
costs for residents and businesses. Because PACE is funded through municipal bonds it creates no liability to the city's funds. PACE programs also help to create jobs and thus spur local economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
when local solar installers and renewable energy
Renewable energy
Renewable energy is energy which comes from natural resources such as sunlight, wind, rain, tides, and geothermal heat, which are renewable . About 16% of global final energy consumption comes from renewables, with 10% coming from traditional biomass, which is mainly used for heating, and 3.4% from...
companies partner with the program. It is also an opt-in program, so only those property owners who choose to participate are responsible for the costs of PACE financing.
PACE enables individuals and businesses to avoid the upfront costs that are the most common barrier to solar installation. The PACE loans are paid with property taxes over a course of roughly 20 years while energy costs are simultaneously lower, providing the PACE consumer with net gains. Also, because the solar panels and the PACE loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
is attached to the property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
, the consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
can sell the property leaving the debt to be paid through the property tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
assessed on the subsequent owners.
Locations with PACE Legislation
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External links
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