Court Revives Hopes for PACE: Clean Energy Financing Program

A California court ruling has revived hope for proponents of Property Assessed Clean Energy (PACE) financing.

PACE, which was authorized in 27 states through legislation, made it much easier for property owners to finance energy efficiency and renewable energy projects in homes and businesses without prohibitive upfront costs.  

PACE funds energy improvements with government bonds that are repaid via special tax assessments on the properties where improvements are made. 

The PACE structure allows the high initial cost to be spread out to match the energy payback period, so the annual energy-cost savings exceed the tax assessments.

But in July 2010 the Federal Housing Finance Agency (FHFA) issued guidance to lenders saying PACE programs were risky and inadvisable. 

That effectively halted all PACE financing, even though it was approved by over 20 states and had the support of the Obama Administration.

Two lawsuits in New York have failed to get the program reinstated.

Finally, on August 21, a US District judge in Northern California ruled that FHFA, which oversees federal housing corporations Fannie Mae and Freddie Mac, must hold a notice and comment process – giving the public a chance to have its say on the program.

FHFA says it advised against PACE because in the case of default, the liens would trump the bank mortgage, meaning banks would be at risk of losing more money.

FHFA has not said whether it will appeal the court ruling.

"It definitely marks a turning point in the litigation," Kit Kennedy, a lawyer for the Natural Resources Defense Council, told the New York Times.

Kennedy participated in one of the two failed law suits in New York, and said he hopes there will be an "outpouring of comments on the value of PACE programs."

A recent survey of US homeowners showed strong interest in PACE programs.

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