Wednesday, October 03, 2012
California Launches Biggest Commercial Clean Energy Financing Effort in US
The long-term fate of residential Property Assessed Clean Energy (PACE) programs is still uncertain, but commercial programs are still emerging and California leads the way.
In late September, a group of 14 counties and 126 cities announced the nation's largest initiative to leverage the financing model for commercial properties.
This is the first multi-jurisdictional initiative of its kind.
Participating counties under the CaliforniaFIRST include Sacramento, Yola, Solano, San Francisco, San Mateo, Alameda, Santa Clara, Santa Cruz, San Benito, Monterey, Fresno, San Luis Obispo, Kern, Ventura and San Diego.
The CaliforniaFIRST program being run by the California Statewide Communities Development Authority (CSCDA) lets commercial property owners use municipal bonds to pay for energy efficiency, water efficiency and renewable energy upgrades – which the owners repay over time through a special assessment on their annual property tax bill.
The PACE structure, authorized in 27 states, allows the high initial cost of investments to be spread out to match the payback period, so the annual cost savings exceed the tax assessments that come with property improvements like these. California's new CaliforniaFIRST program will look to private investment for the upfront funding, so as not to burden local budgets, says CSCDA.
If all US businesses conducted the sorts of upgrades made possible through PACE, it would reduce their collective energy usage by 25% - saving $100 billion, says CSCDA.
"Commercial PACE gives businesses a great option for pursuing energy efficiency projects that may have previously been out of reach," says San Diego County Supervisor Dianne Jacob. "The County's partnership with CaliforniaFIRST provides a mechanism for participants to start spending less money on energy bills and more back into the business."
The PACE financing model was pioneered in Berkeley, California, for residential properties. But it ran into headwinds in July 2010, when the Federal Housing Finance Agency (FHFA) issued a statement calling the loans risky and inadvisable.
The issue for the federal government was that PACE loans might be paid back before banks or Fannie Mae or Freddie Mac if a property went into foreclosure.
While residential programs have languished, commercial PACE programs exist in San Francisco and Los Angeles – as well as in the Washington DC.
"CaliforniaFIRST's approach has potential to promote energy efficiency retrofits of commercial properties and maintain lien security for mortgage lenders," says Wayne Seaton, managing director Wells Fargo's Sustainable Public Infrastructure group.
Besides receiving support from traditional banks like Wells Fargo, other financial institutions behind the program include Clean Fund, which has financed PACE retrofits in California and Minnesota.
"PACE financing has the potential not only to save energy and money, but to create nearly 25,000 jobs in California," says Clean Fund CEO John Kinney.
The CaliforniaFIRST program is administered by Renewable Funding in Oakland, which was behind the first PACE program in Berkeley in 2008. The company is an advisor to the US Department of Energy on commercial PACE financing and it runs programs both in the US and in countries including Australia.
CSCDA was created in 1988 to provide California's local governments with a way of funding community-based public benefit projects.
The fate of the PACE program for residential properties remains uncertain, although in August, a federal district court judge in California ruled the FHFA violated federal law when it abruptly decided not to underwrite mortgages on homes that used PACE loans. That's because the FHFA did so without allowing any sort of public comment period.
A 2011 survey showed strong interest in residential PACE programs, so future rulings on the matter will be scrutinized closely.
For more about CaliforniaFIRST: