How the Fate of PACE Could Influence the Clean Energy Economy

Published September 01, 2010

[Editor's Note: This is the first segment of a three-part series about Property Assessed Clean Energy (PACE) financing.]

A form of financing for renewable energy and energy efficiency -- Property Assessed Clean Energy or PACE -- has been getting a lot of attention lately:

First because of the rapid adoption and implementation of PACE programs by cities and municipalities around the country, and more recently due to tensions with the mortgage industry -- namely a high profile debate between FHFA (the agency which oversees Fannie Mae and Freddie Mac), clean energy advocates, the DOE and the White House about the future of PACE and the programs impact on the mortgage industry. What is at stake is a set of ramifications that could determine the future of our clean energy economy.

PACE financing is a potentially revolutionary way to retrofit commercial, residential, and industrial properties with energy efficiency and renewable energy technologies. The program overcomes one of the largest hurdles to investment in clean energy -- the upfront cost.

The political battle over the fate of PACE will play out in the coming weeks and months. Regardless of the outcome, there will be significant implications for stakeholders across industries and economic sectors and many important lessons for businesses seeking to benefit from the transition to a clean energy future.

What is PACE?

PACE is a financing mechanism that allows qualified property owners the opportunity to borrow money, with little to no upfront cost, to install renewable generation, energy efficiency, and water conservation measures. The loan is paid back through a special assessment tax levied against the property, which is senior to the first mortgage.

What does this mean in practice? Any "back-taxes" associated with the assessment are paid back before the regular mortgage in the case of default. In cases where the property is sold before the end of the repayment period, the remaining obligation is transferred to the new owner in the same manner as property taxes.

If designed properly, with the appropriate safeguards in place, PACE should result in a net positive cash flow for property owners -- individuals should reduce their annual energy costs by more than the loan fees.

Next Page: The tension over PACE.

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How the Fate of PACE Could Influence the Clean Energy Economy

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How the Fate of PACE Could Influence the Clean Energy Economy

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