PACE Financing 101 and Status
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Property Assessed Clean Energy (PACE) programs allow homeowners to finance energy improvements through municipal bonds repaid via a surcharge on property taxes. PACE has grown to 21 states and $40 million invested but faces challenges from Fannie Mae, which refuses to accept mortgages with PACE loans due to lien priority issues. Solutions include lawsuits, legislation, and alternatives like on-bill financing, but participation may exceed energy savings without minimum standards for projects.
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PACE Financing 101 and Status
- 1. Property Assessed Clean Energy (PACE) Municipal Energy Financing in the United States John Farrell, Director Energy Self-Reliant States and Communities program jfarrell@ilsr.org 612.276.3456 x210 Adapted from a presentation to the Smart Energy Dialogue Berlin | June 9, 2010 Photo credit: Flickr user OZinOH
- 2. PACE Financing • Overview • Rationale • Potential • Challenges Municipal Energy Financing: Lessons Learned h6p://bit.ly/munienergyfinance
- 3. Overview Sells bonds Installs energy improvements Pays for property Pays with long-‐ improvements term property tax assessment Assesses property for cost plus interest
- 4. Overview PACE Process PACE program adver?sed
- 5. Overview PACE Process PACE program Informa?on adver?sed sessions
- 6. Overview PACE Process PACE program Informa?on Sign-‐ adver?sed sessions up
- 7. Overview PACE Process PACE program Informa?on Sign-‐ Energy adver?sed sessions up audits
- 8. Overview PACE Process y Retrofit s contract
- 9. Overview PACE Process Retrofit y Retrofit completed, s contract City pays
- 10. Overview PACE Process Retrofit Owner pays y Retrofit completed, assessment, s contract City pays enjoys energy savings
- 11. Rationale Financing Mismatch 5-‐6 years 5-‐6 years 10-‐15 years 5-‐6 years
- 12. Rationale Solution: Property Tied Financing 5-‐6 years 5-‐6 years 10-‐15 years
- 13. Rationale Information Disjointed State U?lity rebate rebate U?lity audit Energy Nonpro Star fit ra?ng energy Federal guide tax credit
- 14. Rationale Solution: One-stop Shop U?lity State PACE program Federal Nonpro fit
- 15. Potential PACE Status (2010) • 21 states • 4 established municipal programs • Almost $40 million spent • 2,000 properties served Legend Recently enacted PACE laws Pre-‐2009 statutes suppor?ng PACE
- 16. Potential PACE Status (2010) Spending in 2009 PACE Programs $40 Utility Energy Efficiency Programs $3,600 $0 $1,000 $2,000 $3,000 $4,000 Millions
- 17. Potential PACE Potential Future Spending? PACE Programs 2010 $300 PACE Programs 2011 $600 Utility Energy Efficiency Programs $3,600 $0 $1,000 $2,000 $3,000 $4,000 Millions
- 18. Challenges & Solutions • Challenge: Fannie Mae objects • Solutions • Lawsuits • Legislation • Alternatives • Challenge: Participation v. Energy Savings
- 19. Challenges & Solutions Issue: Fannie Mae Objects Lender Letter LL-2010-06 May 5, 2010 TO: All Fannie Mae Single-Family Sellers and Servicers Property Assessed Clean Energy Loans PACE loans generally have automatic first lien priority over previously recorded mortgages. The terms of the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that have senior lien status to a mortgage. As PACE programs progress through the experimental phase and beyond, Fannie Mae will issue additional guidance to lenders as may be needed from time to time. Lender letter: http://tinyurl.com/3y2g4mw
- 20. Challenges & Solutions Issue: Fannie Mae Objects Lender Letter LL-2010-06 May 5, 2010 TO: All Fannie Mae Single-Family Sellers and Servicers Property Assessed Clean Energy Loans 1. We don’t come second. 2. This isn’t a public good. 3. “We’re buried in a subprime mess. Nothing new, please.”
- 21. Challenges & Solutions Solution #1: Lawsuits • FHFA, Fannie, & Freddie sued by: • California Attorney General • Sierra Club • Sonoma County, CA • Town of Babylon, NY Small victory: Aug. 31, 2011 ruling requires FHFA to start over with formal rulemaking
- 22. Challenges & Solutions Solution #2: Legislation • The PACE Assessment Protection Act of 2011 • Fannie Mae and Freddie Mac must revise their lending standards to conform with Department of Energy PACE Guidelines from May 2010. • FHFA, Fannie, and Freddie may not discriminate against any borrower in a community with a PACE program. Photo credit: Flickr user katieharbath
- 23. Challenges & Solutions Solution #3: Alternatives • On-bill financing • Utility finances improvements • Utility ties billing to the meter instead of individual • “Pay As You Save” (now defunct) • Drawbacks • Requires utility participation • Utility billing system may need upgrade
- 24. Challenges & Solutions Solution #3: Alternatives • Junior liens (e.g. Maine) • Does not come before mortgage in event of default • Still tied to property tax bill • Drawbacks • No secondary market • Can’t transfer between owners?
- 25. Challenges & Solutions Solution #3: Alternatives • Subsidized home retrofits • E.g. weatherization • Drawbacks • Who pays for subsidy?
- 26. Challenges & Solutions Solution #3: Alternatives • Loan loss reserves • Can insulate lender • Drawbacks • Who pays for reserve?
- 27. Challenges & Solutions Solution #3: Alternatives • Loan insurance • Insulates lenders • Low cost • Drawbacks • Offered to FHFA, but rejected • No private market right now
- 28. Challenges & Solutions Issue: Participation v. Savings
- 29. Challenges & Solutions Minimum Standards? • Minimum expenditures, e.g. $3,000 Energy savings Par?cipa?on $3,000
- 30. Challenges & Solutions Minimum Standards? • Minimum expenditures, e.g. $3,000 • Minimum energy savings, e.g. 10% Energy savings Par?cipa?on $3,000 10%
- 31. Challenges & Solutions Minimum Standards? • Minimum expenditures, e.g. $3,000 • Minimum energy savings, e.g. 10% • Efficiency threshold, e.g. EPA Yardstick Energy savings Par?cipa?on EPA $3,000 10% Yardstick
- 32. Challenges & Solutions Minimum Standards? • Minimum expenditures, e.g. $3,000 • Minimum energy savings, e.g. 10% • Efficiency threshold, e.g. EPA Yardstick • Retrofit Mandate to a min. standard Energy savings Par?cipa?on EPA Yards?ck $3,000 10% Yardstick mandate
- 33. Thank you! John Farrell Other Resources www.energyselfreliantstates.org •PACENOW.org jfarrell@ilsr.org •This report: johnffarrell 612-276-3456 x120 Municipal Energy Financing: Lessons Learned h6p://bit.ly/munienergyfinance