Keeping Pace with Energy Efficiency PACE Financing
Commercial building owners in Northeast Ohio now have the resources to take advantage of PACE financing. Although Ohio PACE legislation was passed in July of 2009, programs had yet to materialize in the Cleveland area. However, Cuyahoga County, and area organizations, have begun reorganizing their efforts to implement PACE financing. As PACE gains momentum, it is important for owners to understand what PACE is, why it is unique, and how it can add value to an energy project.
PACE (Property Assessed Clean Energy) is a means of financing energy efficiency projects. In Ohio, these projects are defined as “technologies, products and activities that reduce or support the reduction of energy consumption, allow for the reduction in demand, or support the production of clean, renewable energy.” PACE pays for 100% of the project cost through third-party financing and is repaid through an assessment added to the property’s tax bill. Local governments sponsor PACE to aid in economic development, job creation, and environmental initiatives.
The main difference between a typical loan and PACE financing is the avenue of repayment. However, there are many benefits to structuring financing through a tax assessment. For example, PACE assessments are linked to the property, not the owner. Investors and developers can now invest in energy efficiency or renewable upgrades without being tied to a long-term loan upon potential sale of the property. Also, PACE is appealing because, if properly structured, assessment-based financing can achieve off-balance sheet treatment and can preserve borrowing capacity for other projects.
In order to qualify for PACE financing, the improvement should “pay for itself.” This means that the expected savings from the energy improvements should meet or exceed the expected increase in property taxes. This is more easily attainable when working with a licensed contractor that can contractually guarantee energy savings. With a guarantee in place, the contractor is at-risk for savings goals not achieved. Also, the length of repayment should not exceed the useful life of the improvement. For example, a lighting retrofit with a useful life of 80,000 hours should not have a repayment term exceeding 10 years (depending on occupancy schedule).
To date, over 700 commercial and industrial buildings nationwide have been upgraded using local PACE programs. PACE brings a fresh perspective to traditional energy funding mechanisms and offers a solution for commercial building owners that otherwise avoid projects with longer paybacks. For more information on PACE financing, visit www.pacenation.us or contact us.