Property Assessed Clean Energy (PACE)
What PACE Is (from http://www.newjerseypace.org/what-is-pace/)
Here’s a 90-second video explanation of PACE created by the national organization PACENation.us:
Innovative. Voluntary. Efficient.
PACE is Property Assessed Clean Energy, a new and innovative way for property owners to pay for energy efficiency upgrades, on-site renewable energy projects, and water conservation measures. PACE funding is provided for 100% of a project’s costs and is repaid as a special assessment over a term of up to 20 years. Local government assessment financing has been used efficiently for decades throughout the United States to fund improvements to private property that meet a public purpose.
- PACE financing is available for all types of properties; New Jersey PACE works only with “non-single-family-residential” — commercial and industrial properties, multifamily buildings, and institutional properties owned by non-profits.
- Financing approvals are simple, but PACE projects must be permanently affixed to the property and save money for the property owner.
- Benchmarking, energy audits, and evaluations can be used to ensure that projects make sense, but PACE is 100% voluntary. In communities that adopt PACE, assessments are only paid by participating owners, and only for their own projects.
PACE is a state initiative, but programs are locally based and tailored to meet local market needs. New Jersey PACE is the first and so far only nonprofit PACE originator in New Jersey. Once the new legislation is approved, the NJEDA program will need to be adopted by local ordinance in each municipality, through a standard ordinance that provides for uniform program administration across the state.
In a nutshell:
“Property Assessed Clean Energy (PACE) is an innovative way to finance energy efficiency and renewable energy upgrades to buildings. Interested property owners evaluate measures that achieve energy savings and receive 100% financing, repaid as a property tax assessment for up to 20 years. The assessment mechanism has been used nationwide for decades to access low-cost long-term capital to finance improvements to private property that meet a public purpose. By eliminating upfront costs, providing low-cost long-term financing and making it easy for building owners to transfer repayment obligations to a new owner upon sale, PACE overcomes challenges that have hindered adoption of energy efficiency and related projects in our nation’s buildings.” (Source: http://pacenow.org/about-pace/what-is-pace/
Energy efficiency is the least expensive energy we can buy. In the U.S., buildings alone consume over 40 percent of the energy we use, and roughly 75 percent of all electricity. A 2012 study by the Rockefeller Foundation and DB Climate Change Advisors foresaw an investment opportunity of nearly $280 billion over the next 10 years that would translate to over $1 trillion in energy savings, over 3 million jobs, and 600 million fewer metric tons of carbon emissions per year. Because of multiples hindrances in legislation and practice, Commercial PACE has so far produced under $2 billion of projects over the past decade, but now appears poised to take off, for several reasons:
- Property owners see the opportunity to reduce operating costs and make their buildings more valuable
- Existing mortgage lenders support projects that help to meet their clients’ objectives and increase the value of their collateral
- Energy service companies and contractors can use PACE as “another arrow in the financing quiver”
- Local governments adopt PACE because it creates jobs, economic activity, and helps meet energy conservation goals
- Private market investors are keen on PACE because assessment liens are a proven, strong credit
Benefits of PACE
PACE financing has many features that can uniquely solve barriers to the adoption of energy efficiency, renewables, and resiliency measures.
- 100% financing requires no up-front cash investment
- Long-term financing (up to 20 years) results in immediate positive cash flow
- No payoff upon sale because PACE assessments (and energy savings) remain with the property
- Assessment costs and savings can be shared with tenants
- PACE can attract a wide range of private investors with low interest rates
- PACE may be treated as off-balance-sheet financing
- PACE is non-recourse and non-accelerating financing
- PACE programs are local and community members are motivated to engage in outreach and marketing efforts
PACE financing works for large and small projects on just about any commercial building. Some of the world’s largest property owners, including Simon Property Group and Prologis, Inc. have used PACE to finance energy efficiency and renewable upgrades to their buildings.
NJ PACE Legislation
PACE legislation was first enacted in New Jersey in 2012 (PL2011, c.182), but the law was effectively crippled by
- requiring towns to get pre-approval to introduce PACE from the Division of Local Government Services (DLGS) — but under Gov. Christie the Division declined to even consider any applications
- limiting financing options to municipal and county improvement authority bonds, with no reference to private financing, and
- providing insufficient detail for municipal attorneys to advise towns to proceed.
Amending legislation has been passed in the Assembly and is currently awaiting action in the NJ Senate, and we expect Commercial PACE to be available sometime in 2021. For a brief legislative history, see http://www.newjerseypace.org/resources/legislation/.
The types of financing described on this site are intended to provide “a bridge to PACE,” by supporting PACE-eligible projects that could later be converted to PACE assessments, and promoting the awareness and understanding of PACE by the property owner and energy and engineering services provider communities.