Energy Manager Today
September 16, 2014
By Michael Park
I answer questions everyday about various ways to finance energy efficiency retrofits, and the one that people are intrigued about the most is PACE. Everyone has read something about it, but not many people know exactly what is, how it works and when it’s good fit. In this article I’ll hope to demystify it so you can make an informed assessment of your project’s fit for PACE financing.
What is PACE?
PACE stands for Property Assessed Clean Energy is a government-backed program to finance energy efficiency upgrades and renewable energy projects. It is designed to address the financing challenges specific to efficiency and renewable projects, such requiring no money down, longer loan terms (to accommodate longer payback periods, for example), and fixed low interest rates. The main differentiator, however, is that the building is the collateral, not the person or their business. That is, the loan is set-up as a senior lien on the building and is paid as a tax, not as a loan to the building owner or business. So, it does not require a personal guarantee or a high credit rating for the business. This has several benefits for the building owner. One, since PACE is structured as a tax on the property, the payment can be passed on to tenants, which addresses the split incentive problem that so many building owners grapple with when considering energy efficiency investments. And, because it’s a lien on the building, it transfers with a change in ownership, removing the complications of unwinding it if the building is sold. For full article…