If you haven’t heard about Property Assessed Clean Energy (PACE) financing, it’s a valuable resource you may be overlooking. Over the past few years, this new energy efficiency financing mechanism has swept across the U.S., with already more than half of the states approving legislation to enable it locally.
The PACE concept essentially involves financing energy efficiency projects via property tax assessments, which are repaid over longer periods than traditional credit-based loans. In simple terms, a project can be completely financed such that there is no initial capital expenditure. The loan is secured with a slight increase to the property tax payments.
Similar to performance contracting financing, the annual savings of the energy project are greater than the finance payments, so PACE is a cash flow neutral option for commercial properties. An exciting benefit of PACE is that it allows owners to take advantage of more capital-intensive projects with longer paybacks and greater overall savings. Because the repayment is tied to the property (and not the owner), PACE financing effectively reduces the vulnerability of traditional financing, which is primary influenced by the credit rating of the facility owner.
If the owner sells the property, the additional property tax obligation transfers with the property, but so do the energy savings (which are greater than the additional property taxes). Thus, after the retrofits, the improved property has a greater value.
Where is PACE Available?
Because state and local entities are involved, legislation to enable PACE financing has to be approved on a state basis. To see if PACE has been enabled in your map, see the map. The good news is that most states have already recognized the value in PACE and approved it. PACE represents a competitive advantage to the states that have enabled it, because businesses within those states have more ability to become cost-competitive via the positive cash flow from the energy efficiency projects.