2. Barriers to Energy Efficiency
Lack of information
Uncertainity about the energy savings
Split incentives
Transaction cost
High upfront cost
“The Energy Efficiency Gap”
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3. Financing Clean Energy: PACE
€ Upfront
€ Repayment
obligation
• Creates financing district • Identifies work & chooses
& approval process contractor
• Provides upfront capital • Repays financing as a line
• Attaches repayment item on the property tax bill
obligation to the building • Repayment obligation
transfers with ownership
4. Operating Model
Contractor
Step 1
Local government establishes clean energy
assessment district Step 4 Step 5
Step 2 Loan goes to property owner Installation
Property owners voluntarily opt in to and payment
program
Local Government Property Owner
Step 6
Owner receives and pays tax
assessment for 10-20 years
Step 3.a Step 3.b
DSR fund set up to attract Government arranges financing
lenders for leverage terms with Banks
Debt Service
Banks
Reserve Fund
5. PACE provides a new opportunity
New source of capital for EE/RE improvements
Longer repayment period – Up to 20 years
BENEFITS
Obligations transfer with property - build
green equity
Reduced transaction costs – Often an easier
process than applying for a home equity line or
second mortgage
Information from a trusted source – State and
local govts are a trusted source of info and can
enable residents and businesses to take action
6. 28 States + DC authorized PACE
ME: 2010
MN: 2010 MI: 2010
NH: 2010
NY: 2009
OR: 2009
VT: 2009
WI: 2009
WY: 2011 MA: 2010
CT: 2011
NV: 2009 OH: 2009
IL: 2009 NJ: 2012
CO: 2008
DC MD: 2009
CA: 2008 VA: 2009
MO: 2010 DC: 2010
NC: 2009
NM: 2009 OK: 2009
GA: 2010
TX: 2009
LA: 2009
FL: 2010
HI: Existing
Authority
PACE financing authorized by the state*
www.dsireusa.org / February 2012
7. Examples of PACE in action in the USA
Program Source of Financing Collection Result as of august
Eligible measure
launched capital mechanism mechanism 2009
November Micro bond sold Special tax Property Solar PV 38 projects
BERKELEY 2008 to financial tax bill $28,000 ave/per
(CA) partner $1M committed
October City’s general Assessment Property Energy efficiency, 206 projects
2008 fund; tax bill Solar thermal, $36,000 ave/per
PALM Redevelopment Solar PV $7,5M committed
DESERT
Agency Bond;
(CA) financing partner
BOULDER April Country issues Assessment Property Energy efficiency 393 projects
COUNTY 2009 bonds tax bill and renewable $19,000 ave/per
(CO) $7,5M committed
August 2009 Municipal solid Assessment Separate bill Energy efficiency, 169 projects
BABYLON waste revolving Solar thermal, $7,100 ave/per
(NY) fund solar PV $1,2M committed
Source: Guide to Energy Efficiency & Renewable Energy Financing Districts – 2009
(RAEL by Merrian C. Fuller, Cathy Kunkel, Daniel Kammen)
8. PACE reduces risk for Banks
Mortgage Default Rate with PACE is 1/30th of Non-PACE
homes
PACE Program Data Defaults
City(1) Homes $ Milion Homes (1) Program County(2)
[number] [%] [%]
Babylon 403 3.6 0 0.0 5.4
Boulder 632 10.1 1 0.2 1.3
Palm Desert 240 5.5 0 0.0 3.8
Sonoma 1,290 34.5 1 0.1 3.3
Total 2,565 53.8 2 0.1 3.2
0.1% default rate in PACE programs vs 3.2%in program counties
Only 2 defaults in 2,565 PACE homes vs 82 on same number of non-PACE homes (3)
Note: (1) Program Administrators
(2) McDash Analytics, LLC
(3) County default rate (3.2% * 2,565 Pace program homes = 82 Expected Defaults)
9. Potential Issues
• Limits on What Can Be Funded – Must be fixed to property and last
at least as long at the financing term; potential limitations if required to
be “cash flow positive”
• Cost of Setup – Often administratively difficult to set up, especially for
limited government staff
• Scale – A city, town, or small county is probably too small to bring
down costs; fix costs need to be spread over hundreds or thousands of
assessments each year
• Access to Convenient Funding – Importance to bring down cost of
capital
10. Sample Program Budget
Average project value 15'000 $
Projects 800
Funding Required 12 M $
•PROGRAM DESIGN AND PREPARATION FOR LAUNCH 30'000 $
(Program design, application processing system)
• ADMINISTRATION SERVICES 160'000 $
(Customer service, review application, marketing)
• FINANCE SERVICES 370'000 $
(Legal and financial expenses, tax collection)
ESTIMATED TOTAL COSTS 560'000 $
12. User-friendly tool: PACE Calculator
http://rael.berkeley.edu/financing-italy-IV
Italian Calculator estimates the
cost or saving to invest in
efficiency and solar or other
renewable
Helping homeowners understand the
financial impacts of financing solar
PV, solar thermal, and energy
efficiency.
13. On-bill financing (20 states in USA)
• The utility incurs the cost of an efficiency or renewable improvement and the
customer repays the investment through a charge on their monthly utility bill
• Allows for a streamlined process as utilities already have a billing relationship
Strengths
with their customers, as well as access to information about their energy usage
patterns and payment history.
• Typically enjoys lower default rates due to the association with the customer’s
utility bill.
• Utilities are often reluctant to take on role of financing entity; potential exposure
to consumer lending laws and alterations to billing systems are required
Weaknesses • Can be extremely complicated to set up
• Limited to shorter term financing
• When liability cannot transfer to new owners, homeowner must pay off entire
loan upon sale of property, which could result in not all of the energy savings
being realized
14. Conclusions: Opportunity PACE in Europe
•The rate of innovation in clean energy in the EU has not kept
pace with initial goals, so new tools are needed
• PACE provides a logical and analytically simple new tool
• PACE integrates key externalities to make clean energy
financing more attractive:
It builds clean energy capital in property value
It forces an integration of energy efficiency and
renewable energy planning
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16. Homeowner Protection
• SIR > 1 (Savings to Investment Ratio)
• Financing should be for high value investment
• Assuring that the Retrofit is Constructed as Intended
- List of projects based on energy audit
- Licensed contractors or installers
- Quality assurance program (review upon completation)
Basic Rule:
“pay for itself” principle
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17. Lender Protection
• Reserve Fund
• Length of time (PACE assessments should not exceed the life
expectancy of the energy investment)
• Size of Financing Relative to the House Value (10%)
• Clear title (Applicants must prove they are the legal owners of a
property)
• PACE Financing only where no current default
• No Negative Equity Financing (current estimate of appraised
value. No “underwater” - mortgage on the property is greater than the
current value of the house)
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