Buildings account for approximately 70% of electricity use and 40% of greenhouse gas emissions in the United States, and offer significant opportunities for energy savings and GHG emissions reductions through the installation of energy efficiency retrofits and small renewable energy systems.
Property Assessed Clean Energy (PACE) legislation — first introduced in Berkeley, CA in 2008 and since adopted by 21 states — addresses these opportunities while overcoming several recognized barriers to their implementation: high first costs, high transaction costs involved in deciding on and financing projects, and payback times that often exceed expected occupancy.
Based on the concept of special municipal tax districts, PACE districts are established by local governments to issue loans to residential and commercial property owners who want to make voluntary energy efficiency retrofits or install small renewable energy systems. The loans generally originate from municipal bonds or other similar municipal capital sources. Loan payments take the form of an assessment added to the property tax on the building, typically with a 20-year payoff period.
PACE legislation offers several advantages to property owners over other types of financing (such as home equity loans):
PACE legislation also offers advantages to lenders:
PACE districts are not, however, a silver bullet for realizing energy efficiency savings in a community's total building stock. One obvious drawback affects most such programs: PACE districts are designed for property owners, not renters, so the incentive to invest in energy efficiency is split between the owner, who must make the investment, and the renter, who reaps the benefit from lower utility bills. However, a similar financial instrument called on-bill financing attempts to mitigate this split incentive by including the cost of any improvements to a rental property on the tenant's monthly utility bill; this type of financing is also transferrable to subsequent occupants. ACEEE will be developing a more in-depth resource for on-bill financing in the near future.
In order to put PACE projects in place, states will likely need to amend or create enabling legislation, and local communities will need to grant approval for proposed districts within their jurisdictions. The US Department of Energy has recently published guidelines for pilot PACE programs, and Vote Solar has compiled a list of 10 key components of PACE legal authority. Specific issues to address in legislation include:
Colorado: In May 2008, the state enacted legislation modifying existing city and county authority to create improvement districts specifically for clean energy improvements. SB 51 of 2009 allows additional institutions, including credit unions, to initiate loans; it also allows businesses to participate in the program for the first time. SB 100, introduced in 2010, amends the original legislation to allow multiple counties to form a single improvement district, enabling economies of scale in financing. Local governments may issue bonds to fund the program, subject to voter approval. Boulder County is currently the only county to have created a PACE district in Colorado.