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Property-Assessed Clean Energy Programs

The property-assessed clean energy (PACE) model is an innovative mechanism for financing energy efficiency and renewable energy improvements on private property. PACE programs allow local governments, state governments, or other inter-jurisdictional authorities, when authorized by state law, to fund the up-front cost of energy improvements on commercial and residential properties, which are paid back over time by the property owners.

PACE financing for clean energy projects is generally based on an existing structure known as a "land- secured financing district," often referred to as an assessment district, a local improvement district, or other similar phrase. In a typical assessment district, the local government issues bonds to fund projects with a public purpose such as streetlights, sewer systems, or underground utility lines.

The recent extension of this financing model to energy efficiency (EE) and renewable energy (RE) allows a property owner to implement improvements without a large up-front cash payment. Property owners voluntarily choose to participate in a PACE program repay their improvement costs over a set time period—typically 10 to 20 years—through property assessments, which are secured by the property itself and paid as an addition to the owners' property tax bills. Nonpayment generally results in the same set of repercussions as the failure to pay any other portion of a property tax bill.

A PACE assessment is a debt of property, meaning the debt is tied to the property as opposed to the property owner(s), so the repayment obligation may transfers with property ownership depending upon state legislation. This eliminates a key disincentive to investing in energy improvements, since many property owners are hesitant to make property improvements if they think they may not stay in the property long enough for the resulting savings to cover the upfront costs.

Graphic of a four colored boxes in a row from left to right describing how property-assessed clean energy programs work. The first box on the left reads 'City or county creates type of land-secured financing district or similar legal mechanism.' The second box reads 'Property owners voluntarily sign up for financing and install energy projects.' The third box reads 'The lender* provides funds to property owner to pay for energy project.' The fourth and final box reads 'Property owner repays bond through property tax bill (up to 20 years).'

Commercial Property-Assessed Clean Energy Programs

Commercial PACE programs have been launched in several regions of the U.S. and have utilized a variety of financing structures. While a few of the more established programs like Sonoma County's Energy Independence Program (SCEIP) or Boulder County's Climate Smart Loan Program have financed millions of dollars of improvements, most programs are new and have not yet financed significant volumes.

Residential Property Assessed Clean Energy Programs

Residential PACE programs have recently received considerable attention and regulatory scrutiny. Recent Federal Housing Finance Agency guidance letters have caused many residential PACE programs to suspend operations, but they do not directly affect commercial PACE programs.

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