PACE (Property Assessed Clean Energy) is a creative way to finance energy efficiency, renewable energy, and water conservation upgrades to buildings. PACE can pay for new heating and cooling systems, lighting improvements, solar panels, water pumps, insulation, and more for almost any property including commercial, industrial, non-profit, and agricultural.
Business owners across the U.S. are using PACE because it saves money through significant energy savings, and increases the value of property. The building owner hires a contractor who will guarantee 30% or more energy savings per year, as a result of the improvements. PACE covers 100% of a project’s costs and is repaid, for up to 20 years, with an assessment added to the property’s tax bill. The financing availability is based on property value and not owner credit. PACE financing stays with the building upon sale and is easy to share with future tenants or owners. PACE lenders can be traditional lenders, equity lenders, or municipalities.
Since adopting PACE, the state of California has taken on ten programs and have more in development. The HERO (Home Energy Renovation Opportunity) program, the most widely used PACE program in the state, accounts for nearly 90% of all projects in the state. Since its inception, the program has financed an estimated $1 billion in water and energy savings for residential projects alone.
PACE has recently been adopted in the Milwaukee area as well. According to PACE Nation, “Me² (Milwaukee Energy Efficiency) is a partnership between the Milwaukee Office of Environmental Sustainability, the U.S. Department of Energy, and the Wisconsin Focus on Energy program”. The University Club was the first PACE project in the state that helped in reducing the energy usage on site by 30%.
PACE continues to benefit the property through multiple owners or tenants. The amount of improvements do not show up on the property owner’s balance sheet as a liability, because it is merely an assessment. Improved energy efficiency makes the building more attractive to potential tenants.
Eligible properties must have no property tax delinquencies for three years, be free of title dispute, and be clear of involuntary liens or judgments. The minimum project size that participating PACE lenders will fund is $150,000.
Benefits of PACE go beyond saving money on energy costs. The long-term payback makes PACE- funded projects immediately cash flow positive. PACE-funded projects create jobs and help spur economic activity among local contractors. PACE helps the environment and helps communities achieve important energy and water conservation goals. Efficiency projects upgrade old equipment, which reduces energy use, and renewables replace fossil fuels and reduce greenhouse gas emissions. PACE incentivizes more significant investments in energy improvements.
Not all municipalities are in favor of adopting PACE policies since there is a possibility that they could lose money in a default scenario, and there would be added legislation and oversight, that would be required. The protections that are put in place between owner and lender can, at times, occur an origination fee of anywhere between 1% and 3%. This cost is put in place to cover any third-party engineering review costs. Additionally, the residential programs can add to the homeowners property taxes, making it more costly in the short term.