The acronym “PACE” has received a lot of attention in news media over the past several years. What, though, are PACE programs?
PACE stands for “Property Assessed Clean Energy”. It is a special type of government-sponsored financing for energy-efficient home and commercial building improvement projects and renewable energy installations like:
- Solar panels
- Energy-efficient doors and windows
- LED lighting
- Roofing upgrades
- Energy-efficient heating, ventilation, and cooling (HVAC) systems
PACE financing is not available in all states. Currently, 31 states and the District of Columbia offer some form of the financing option for property owners. California is one of the many states that has adopted this innovative financing option, giving home and business owners great incentives to make upgrades that save electricity and water.
How Does PACE Work?
In simple terms, PACE financing works by allowing local or state governments to cover the upfront costs associated with energy-efficient property improvement projects; these costs are then paid back over time by the property owner at a pre-determined interest rate. Payment is tied to the property itself, so the obligation for repayment may be transferred to a new property owner. This makes improving properties with energy-saving upgrades more desirable; before PACE, many property owners were reluctant to spend money on renewable energy projects knowing that they might not occupy the property long enough to recoup the initial investment.
There are four steps to the PACE financing model:
- The municipality or county creates something called a land-secured financing district (or similar legal entity) to establish the groundwork for PACE.
- Next, property owners choose to sign up for financing and complete renewable energy or energy-efficient projects on their properties. This financing is voluntary.
- Lenders provide the necessary funds to the property owner for the purposes of completing energy-efficient projects.
- The property owner then pays the loan over a specified period of time, usually 10 to 20 years, through the property tax bill.
In the next blog post, we’ll talk about specific lender options such as the nationally-known HERO Program.