From construction to retrofits, PACE financing is saving serious energy

(ACEEE blog, 21 Mar 2019) Property assessed clean energy (PACE), a popular, long-term financing tool for energy and water conservation projects, has grown quickly in recent years across the United States.

The PACE market increased by 75% from 2016 to 2017, completing $251 million in funding by the end of 2017, according to PACENation, a private advocacy group. The impact is significant. Commercial PACE funding has cumulatively saved 6.3 billion kWh, which equals the electricity used by about 25,000 commercial office buildings each year.

PACE financing, used for energy efficiency and clean energy projects, is repaid as an assessment on a property’s tax bill. This financing mechanism means the loan stays with the property rather than the customer, even if the property is sold. To date, 36 states and the District of Columbia have passed PACE-enabling legislation, the first step in giving customers access to this financing tool. Local governments in these states then establish programs, which may be run by third parties.

Commercial PACE, or C-PACE, has been driven by expansion into new markets. In Milwaukee in 2016, PACE Equity financed $7 million of a new Marriott hotel, the first new construction project to use PACE financing in its capital stack. PACE financing accounted for 10% of the project’s development costs, including improvements to HVAC, water heating, windows, and controls. These upgrades resulted in 42% energy savings over code. PACE Equity has also applied C-PACE to new construction projects in other states, including Arkansas, Colorado, Kentucky, and Missouri. According to PACENation, PACE financing can currently be applied to new commercial construction projects in 11 states.

Multifamily upgrades

PACE providers have also begun to finance efficiency upgrades in multifamily housing. Lean and Green Michigan, the statewide PACE administrator, has developed several of these projects. In 2018, it worked with Hannon Armstrong and Counterpointe SRE to develop a PACE project that will turn a pair of brick buildings near the state capitol into a mixed use space, including six multifamily units. The project’s capital stack includes PACE financing, brownfield funding, traditional bank financing, and historic tax credits.

Still, these types of projects are not easy. A 2018 report found that C-PACE uptake was limited for multifamily properties because of the complexity of the financing deals, access to other (possibly more favorable) financing options, limited technical support, and competing priorities within project scopes. Nonetheless, PACE seems to be gaining traction in this space and there is significant opportunity, especially when it comes to financing upgrades for affordable multifamily buildings.

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ACEEE blog, 21 Mar 2019: From construction to retrofits, PACE financing is saving serious energy