PACE: States lead, feds follow

A little over a year ago, the City of Berkeley launched Berkeley FIRST (Financing Initiative for Renewable and Solar Technology), which allows property owners to borrow money from the city’s Sustainable Energy Financing District to install photovoltaic (PV) systems and repay the cost over 20 years through an annual special tax on property tax bills. If the property owner moves or sells the property before the loan is paid back, the remaining balance—along with the renewable energy system– transfers to the buyer.

One year later, the Berkeley FIRST model, now known as PACE (Property Assessed Clean Energy), is alive and well, for the moment, in 16 states including California, Colorado, Illinois, Louisiana, Maryland, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Texas, Virginia, Vermont, Wisconsin.

The PACE program is the trendiest state policy development over the last year, according to IREC’s 2009 Updates & Trends report released last month in Anaheim at its Annual Meeting.

“The legislation varies from state-to-state based on the exact mechanics of state and local interaction,” said Brian Lips, Database of State Incentives for Renewable and Energy Efficiency.  “The resulting programs, from the consumer’s point-of-view, are roughly the same.  But as we’ve seen, local governments have a few options for funding the programs: partnering with a financial institution, selling bonds, using general funds, possibly using ARRA funds.”

What is it they say about imitation being the most sincere form of flattery?

Thank the American Recovery and Reinvestment Act (ARRA) which pushed these policies along by repealing a provision that had limited the use of the Investment Tax Credit (ITC) for projects also supported by “subsidized energy financing.” (And because PACE financing programs probably qualified as “subsidized energy financing” under federal law, the removal of this provision was essential for these state policies to move forward.)

Last month, Vice President Biden’s White House Middle Class Task Force released policy guidelines using PACE, and the White House announced an FOA for its Recovery Thorough Retrofit, a PACE-based financing initiative for competitive grants under the Energy Efficiency Conservation Block Grant Program (EECBG). Up to $453M will be available for state and local governments in the form of competitive grants in two areas.  Language in the DOE FOA strongly encourages applicants to be aware of Property Assessed Clean Energy (PACE) financing programs.

Jack D. Hidary Foundation, member of the Clinton Global Initiative (established by former President Clinton) is also on board the PACE train.    Through its Clinton Global Initiative commitment, the Foundation (with its implementing partners), is seeking high level and federal support for PACE programs and hopes to encourage 50 municipalities to adopt the PACE model over the next six years.

At this rate, those 16 PACE states will soon have more company.

Despite the proliferation of PACE programs, states neither mandate nor require local governments to take any single approach.

“The state programs are not the same,” said DSIRE’s Amanda Vanega.  “In order to enable PACE-style programs at the local level, state governments typically have to pass legislation or amend existing laws that give local governments the authority.”

However, certain types of local governments, such as charter cities or those with extensive home rule powers, have greater authority and could, theoretically, implement a PACE financing program, even if the state has not passed legislation specifically authorizing such programs. This was the case with Berkeley, California.

In California, besides Berkeley, Palm Desert and Sonoma County have PACE programs.  In Colorado, Boulder County was the first county to implement a PACE program.

However, certain types of local governments, such as charter cities or those with extensive home rule powers, have greater authority and could, theoretically, implement a PACE financing program, even if the state has not passed legislation specifically authorizing such programs. Charter City, Berkeley, California, developed its policy independently and, coincidentally, pioneered this policy trend.

Is there any difference between the existing programs?

“On the consumer side, I’d say a big difference between the current state programs is with the eligible technologies,” said Lips.  “Boulder and Sonoma counties both allow a huge laundry list of energy efficiency and renewable energy systems, while Berkeley and Palm Desert only allow PV at this time.”

Local governments that offer PACE financing typically do so by issuing bonds, partnering with a financial institution, or tapping existing funds.

“Determining the interest rate depends on the type of money used (i.e., bonds, vs. general funds, vs. other), the amount of money allocated for administration, and the amount of money set-aside for possible defaults, if any,” said Vanega.

The PACE programs are still young.

“This is still a rapidly evolving area, and while several reports have come out looking at these programs, there are no ‘best practices’ or grading of local programs yet.  From what we have seen at DSIRE, it takes at least six months if not more to get a program launched, post announcement,” said Vanega.

Of the 16 states listed in DSIRE, only four local governments have programs.  “It’s safe to say that at least one local government in each of the remaining 12 states are investigating programs, so the number of local governments with PACE programs should be exploding soon,” said Lips.  Vanega agrees.

“Once the first city or county in each state takes the leap, valuable lessons are learned that will help others within the state progress.  Each state will need a locality to commit to being first.”

That leap might not be as scary, thanks to funding through the Recovery through Retrofit FOA.

If you’re curious about ARRA funding for energy efficiency and renewable energy projects, attend DOE’s Introduction to PACE Financing Programs webinar on Thursday, November 18 from 1-2:15 ET.


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