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[Editor's Note: This is the second installment of a three-part series about Property Assessed Clean Energy financing. Part 1, "How the Fate of PACE Could Influence the Clean Energy Economy," is available on GreenBiz.com.]
Property Assessed Clean Energy, and similar financing programs, have the potential to significantly impact a multitude of stakeholders -- ranging from federal and local governments to lending institutions, bond markets, electric utilities, homeowners and individual contractors.
Although the growing momentum of PACE programs has been stifled by the FHFA, and the future of PACE is more uncertain than ever, the business implications of PACE are worth examining. Whether or not PACE survives the political mess it is currently in, understanding the implications of policy-enabled private financing programs on the ecosystem of stakeholders will inform future financing efforts.
This article examines the high-level implications of PACE on the following key stakeholders:
- Federal Government
- Municipal and City Governments
- Electric Utilities
- Mortgage Lenders
- Banks and Financiers
- Renewable Energy and Energy Efficiency Contractors
- Commercial Business and Home Owners
Federal Government
The administration needs to get some wins on the board with regard to spurring the uptake of clean energy adoption on a wide scale -- and they can't all depend on pouring stimulus dollars into R&D and traditional state incentive programs (though that is helpful). With climate legislation stalled, PACE programs represent a type of nationally applicable win-win policy ideas that are low risk, but have the potential to spur significant private sector activity. With the concerns being voiced by the mortgage industry, the federal government's involvement in Fannie Mae and Freddie Mac mean that federal agencies should be incented to push for tightly regulated, well-structured, PACE programs that both achieve the clean energy goals, but also contain their scope so as to not negatively impact the mortgage giants in government conservatorship.
Municipal and City Governments
Municipal and City governments are where the rubber meets the road with regard to PACE as the mechanism at the heart of the financing scheme is a special assessment tax linked to the property tax system – a local government jurisdiction.
Although there is substantial
Although there is substantial preparation and resources needed to successfully enact PACE, it presents a potentially great solution increase the adoption of more energy efficient buildings. As I understand it, the concept addresses one of the major hurdles that real estate developers face when taking on a new project. In practice, a good number of properties are developed merely to be sold shortly thereafter. What I like about the PACE bond is that the debt is passed on to the new owner. This encourages developers to make the investment in energy efficient solutions because the upfront cost can be passed along. And, since the bond is designed to be paid back at a price lower than the energy savings, the incurred debt won’t deter potential buyers.