Property Assessed Clean Energy (PACE) programs will continue to proliferate in the United States, and by 2015
investment in PACE financing for commercial buildings will total $2.5
billion annually, according to a new market report.
PACE programs create voluntary tax liens on private property, to secure
financing for retrofits. The liens are paid off over 5 to 20 years,
usually on the property tax bills.
In the commercial building sector, energy efficiency retrofits are a highly effective approach for reducing energy consumption and costs while also mitigating greenhouse gas (GHG) emissions. However, the energy retrofit market in privately owned buildings is limited by capital constraints, short planning horizons for property owners, and split incentives between owners and tenants. PACE financing is emerging as an important tool to overcome these barriers in the market for commercial building retrofits.
The level of financing forecast by Pike Research for 2015 would result in the creation of 50,000 new jobs, and mitigate almost 8 million metric tons of carbon dioxide (CO2) emissions, the report states. In an aggressive forecast scenario that contemplates a stronger legislative push for PACE at the federal and state levels, annual investment and the benefits associated with PACE would be more than triple these baseline amounts.
“PACE programs are gaining momentum around the country, and they represent a very promising mechanism for overcoming many of the barriers to energy efficiency retrofits for commercial buildings,” says managing director Clint Wheelock. “The majority of buildings would benefit from energy retrofits, with neutral to positive cash flow in addition to the other environmental and social benefits.”
However, Pike Research’s analysis indicates that several key challenges remain for PACE proponents, mainly stemming from the fact that this is a new and rapidly evolving financial tool. Primary mortgage lenders are concerned that PACE liens would hold a superior position to their own loans. In addition, when a property changes hands, the mechanisms for transferring the PACE lien are still relatively untested. And it is also unclear, under generally accepted accounting principles (GAAP), whether a voluntary PACE lien would be treated as a loan or as an assessment lien for purposes of evaluating a business’s debt position. The outcome of these and other important questions will have a significant impact on the ultimate level of acceptance of PACE as a financing tool for commercial building retrofits.
The study, “PACE Financing for Commercial Buildings”, explores the potential for PACE programs to address many of the critical barriers in the market for renewable energy and energy efficiency retrofits in privately owned commercial buildings. The report includes two five-year market forecast scenarios, with an analysis of the national, state, and local politics and the marketing/sales challenges that will influence which scenario is realized.
An Executive Summary of the report is available for free at the link below.
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