As an energy guy, I have no bias at all on the topic of PACE or Property Assessed Clean Energy loans. It’s the unequivocally greatest thing ever thus explaining the new expression, ‘the best thing since PACE loans.’ So I’m a lot biased. But what is so cool about PACE financing and why do energy efficiency guys get all doe-eyed when talking about it. What is PACE?
What is a Property Assessed Clean Energy Loan (love saying that)>?
PACE is an acronym for Property Assessed Clean Energy…like I just said. It is an increasingly widely adopted financing program which addresses one of the central problems facing the spread of solar installations and energy efficiency work, that of the huge up front cost.
From a long term financial view, energy efficiency work is a no brainer. If $1,000 worth of work saves you $100 per year, you’re earning 10% return on investment with a payback of 10 years. An absolute no brainer except … you’re planning to move in 5 years. D’oh!
In steps PACE financing. Property Assessed Clean Energy loans are structured as a secondary mortgage lien, meaning when you sell the house the loan moves with it. You the homeowner get to enjoy the money saving and comfort benefits from day one. If you sell the house, the loan stays with it. In essence, you’re only paying for the efficiency improvements you use.
PACE loan ordinances were first used in Berkely, California where they set out to produce the most unwieldy name manageable; I mean, ‘Property Assessed Clean Energy’. The concept was to overcome the very substantial up front investment necessary for solar electric and solar hot water. This was expanded to include high performance windows (another huge investment), heating systems and insulation. A state wide PACE framework was recently passed in Maine and is being approved by the individual towns and cities.
Advantages of PACE
PACE financing programs help make the sometimes daunting up front costs of energy efficiency much more manageable. The funds for PACE programs are obtained from various sources.
Maine used a portion of its ARRA funds as seed money for the PACE program. Most towns issue municipal bonds, repaying the bonds with the savings recouped from efficiency work. This ensures the municipalities aren’t making enormous cash outlays for efficiency projects. Lastly of course, PACE financing helps create energy efficiency jobs like mine.
The one major drawback with PACE financing (other than some folks aversions to loans) is that Fannie Mae, Freddie Mac and some other financial venues are not accepting applications with PACE finance liens attached.
PACE residential financing is a great way to get efficiency work like insulation and heating systems done but avoid the gigantic up front outlay.