This guide features a number of market leaders who have contributed to the growth of the PACE industry. These individuals and organizations are PACE experts and it’s PACENation’s view that their insights can help accelerate the adoption of PACE nationwide. PACENation is an impartial advocate for PACE financing and we do not endorse any particular organization featured in this guide, which is aimed to present multiple views on how to set up and operate a successful commercial PACE program. We invite you to view this page as a non-prescriptive compilation of options for the implementation of PACE.
The Public Aspect of PACE
Increasingly, state and local governments are adopting ambitious clean energy goals. As energy demand grows, the public sector is concerned with the cost of building new power plants, expanding and maintaining extensive transmission systems, and environmental impacts of burning fossil fuels. Since half the energy we consume is used in buildings, reducing their demand for it must be a critical component of energy conservation strategies. PACE helps achieve energy conservation goals by making it easier for building owners to finance clean energy upgrades to their properties. PACE is a new use of the assessment financing mechanism that local governments have used for decades to to finance projects that meet a public purpose and ultimately benefit private property owners. Today, over 37,000 assessment districts in the US finance sidewalks, parks, water and sewage filtration plants. PACE, developed in 2008, broadens the historical application of assessment financing to include energy efficiency, renewable energy or water conservation projects. PACE requires the adoption of state enabling legislation and a unit of local government with the authority to place a PACE assessment on a property. A variety of public sector entities have been involved in implementing PACE, but a basic decision rests on whether a unit of government acts on its own, or joins with others in some type of collaborative effort. The trend has been toward aggregation, examples of which include:
- State Green Banks operate in a handful of states, including Hawaii, Connecticut, New York, and New Jersey. Connecticut authorized its Green bank to administer a statewide C-PACE Program that individual cities and towns opt to participate in. Having centralized administration in the Green Bank creates uniformity and economies of scale in many ways.
- Joint Powers Authorities are a common PACE program umbrella structure in California, where local governments opt to join one of a number of state sanctioned authorities that contract with companies to administer and offer PACE financing. Examples include the California Statewide Community Development Authority, the Western Riverside Council of Governments, the Golden State Finance Authority, and the California Enterprise Development Authority. Similar authorities, agencies, district, local development corporations operate similarly in other states, including the Energy Improvement Corporation in New York, the Toledo-Lucas Port Authority in Ohio, or the Green Energy Works, Green Corridor District, or PACE Funding Agency in Florida.
- City and County Governments have chosen to operate PACE Programs independently in a number of states, including the Sonoma County Energy Independence Program, San Francisco’s GreenFinaceSF, Placer County’s mPower, and LA County PACE in California, or Leon County’s Upgrade Leon and St. Lucie County’s SELF Program. For local governments that operate their own programs, a key decision is whether to staff all aspects of program administration or outsource all or some of the program functions to third parties, which could be for profit or non-profit entities.
- Non-profits often find that their mission aligns well with PACE’s value proposition. A number have partnered with municipalities to establish and run PACE programs, including the Greater Cincinnati Energy Alliance, the Missouri Energy Initiative, the Clean Energy Coalition from MI, and Keeping PACE in Texas.
The Private Aspect of PACE
Local governments sponsor PACE programs and administer the assessment by placing it on the tax roll, collecting and remitting it to PACE project funders, and enforcing non-payment. Some governments also provide initial or permanent funding for projects. But for most PACE programs, the PACE public private partnership focuses most activity in the private sector. Buildings are overwhelmingly privately owned, energy services contractors are private companies, funding for most projects comes from the private sector, and many program administrators are for-profit companies. The following private sector entities are involved in the PACE market:
- Commercial Real Estate (CRE) property owners are natural PACE market actors since each PACE project involves a building and occasionally other structures on the property (e.g. a parking lot, a stand-alone solar array). Building owners, depending on their level of awareness, sophistication, and size, may be proactive in developing project ideas and then working with contractors to analyze, refine, and implement them. A larger universe of CRE owners react to ideas and proposals developed by contractors, energy efficiency consultants, or PACE programs. CRE building owners encompass a wide range of actors, from multinational Real Estate Investment Trusts to “main street” commercial property owners.
- Contractor is a general term we use to describe a range of energy services companies, from multinational ESCOs, like Siemens and Johnson Controls, to regional ones. Contractors also include companies focused on single measures, such as HVAC, or lighting, or solar.
- Specialized Firms may offer project insurance, contractor training and certification, technical review of projects, or savings guarantees.
- Project Developers refer to a growing number of companies that source, manage, and finance projects. Search our member directory to find examples. These companies can function as independent project originators, as consultants that have contracted with PACE Programs to increase project volume in a particular geography, or as a building-owner representatives. Project developer business models vary and one easy way to distinguish among them is to ask the question: “Who is the primary client?” If the answer is “a property owner”, then a developer is likely to get paid through closing costs. Alternatively, if the answer is “a local government”, then a project developer could be contracted by the government, which funds its operation.
- Finance Providers for PACE projects are almost entirely from the private sector. Today, these range from large Wall Street companies to smaller investment houses that may specialize in energy efficiency, renewable energy or even just PACE funded projects. End investors in PACE projects today are generally sophisticated institutional investors, such as insurance companies and money management firms. You can find more information on sources of PACE funding in the Financing 101
- Program Administration may be outsourced to private for-profit companies, and it is not uncommon for a program administrator to also provide financing, marketing & outreach, contractor training and other services required for a successful PACE program.
- Law Firms provide the legal framework for PACE programs. Some legal work may be provided by government law departments, but much of the legal work is outsourced to private firms. Again, you can use our member network to find companies that specialize in PACE.
“It’s not rocket science, just hard work.” David Rogers. Frost, Brown, Todd Attorneys LLC
It all starts with the analysis of the existing body of state law – lawyers would want to know whether local governments, in a given state, have the ability to undertake public improvements that benefit private property owners and collect the charges through an assessment mechanism. This ability is termed an existing authority. The majority of states have an existing authority to create parks, improve street lighting, build new sewage plants, etc. Then, the issue becomes expanding this existing authority to include energy efficiency, renewable energy and, in some cases, water conservation projects that have a valid public purpose. A PACE bill essentially becomes an amendment to the existing code, expanding the local government’s authority, by:
- amending the type of improvements that can be financed for a public benefit (adding energy efficiency, renewable energy, water conservation to the well-known options like parks, street lighting, water filtration plants, etc.)
- allowing private properties to be voluntarily assessed (typically property taxes and assessments are mandatory, so there is a need to create a voluntary opt-in mechanism for private property owners)
It is generally preferred to build a PACE law upon the existing code that has an interpreted set of rules guarding the lien priority of a property tax assessment. However, in some states, PACE laws ended up creating a new section of a statutory code. In these stand-alone cases, it is important to explicitly define the lien priority as senior and describe the annual/bi-annual collection mechanism.
While the legislative process differs across states, there are common elements emerging across the country:
A PACE Champion: A champion can be an organization, a private company or a group of individuals (e.g. Arkansas Advanced Energy Association, Utah Clean Energy Coalition, Keeping PACE in Texas, Renew Financial). A champion typically amasses political support at the state legislature and engages in lobbying, if necessary. Additionally, a champion helps determine a PACE model for the state: whether there is support and infrastructure to put a state-wide model in place or whether there is interest for locally driven city or county-led programs. All successful legislative efforts had a very clear champion.
Coalition Building: it is never too early to start thinking about state legislation and begin building the support group consisting of energy service contractors, lawyers, bankers, members of the legislature, local government staff, and other state-specific entities. For instance, in Texas a coalition in support of PACE was comprised of the Sierra Club, Dixie Chemical Company, Inc., Texas Association of Businesses, and many other businesses and environmental community advocates. This diversity ensured that the PACE bill in Texas passed both the House and the Senate unanimously and was signed by Republican Governor Rick Perry.
Effective statutes have:
- Clearly defined lien priority – PACE assessment or charge should be senior to mortgages and, ideally, have the same lien status as other taxes and assessments. Additionally, PACE assessments should be collected in the same manner as property taxes and cannot be accelerated or extinguished until fully repaid.
- Broadly defined project financing options to allow many sources of capital (grants, municipal bonds, public or private capital).
- Broadly defined types of improvements – energy efficiency, renewable energy, and water conservation – without limiting to any particular technology in order to allow local governments to expand the selection in line with new technological discoveries and market trends.
- Open and flexible administrative structures to allow for multiple cities and counties to join in together to form energy improvement districts to achieve standardization and scale.
PACENation developed a legislative protocol that offers a more detailed description of the multiple parameters that can be part of a PACE legislation.Legislative Protocol
PACE is still a relatively new concept and it is not unexpected for the mortgage lender community (e.g. Associations of Bankers and Realtors and Mortgage Bankers Associations) to voice an initial opposition to PACE. The banks want to know how PACE is going to affect their mortgages. Once the mortgage lender community is educated about the PACE mechanism, they tend to realize that PACE funded improvements, in fact, add value to their property and help de-risk the portfolio. In Connecticut, Utah, Texas, and Virginia, the mortgage bankers’ associations were brought on board early-on and ended up acquiescing to or out-right supporting the PACE bills with an explicit lender consent provision. Across the country, lender consent requirement is considered a best practice for commercial PACE. In fact, over a 200 different institutions have consented to PACE across the nation.
Learn How Utah Navigated Its Legislative Process
Meeting regularly with the Utah Bankers Association, Zions Bank Public Finance, and individual lenders to understand and address their previous concerns. We kept bankers and lenders involved throughout the process to make sure their interests were representedKevin Emerson, Utah Clean Energy Coalition
Learn from Virginia's experience
The only known opposition in the beginning was the Virginia Bankers Association. We were able to overcome their opposition by working with them to write legislation. The VBA took a neutral position on the legislation which was the best we were going to getBill Greenleaf, Virginia Community Capital, Inc.
In some states, public utilities may oppose PACE and it is imperative to engage with utilities early-on and address their potential concerns about alternative energy production. The key to gaining support or acquiescence from the public utilities is to communicate that PACE financing is not in competition with their business. In Louisiana, as a result of negotiations with public utilities, PACE-funded renewable-energy improvements are not eligible under the PACE statute, as the Louisiana Public Service Commission, a state regulator, deemed PACE-funded solar to be in competition with public utilities. Arguably, this position handicaps Louisiana’s application of PACE. On the other hand, in CA, the Public Utilities Commission has been a vocal supporter of PACE. In fact, the president of the Commission, wrote that PACE is “an innovative local government tool that eliminates the upfront cost associated with energy efficiency, renewables and water conservation retrofits.”
Moreover, in CT, public utilities are working closely with the Green Bank and state of CT on clean energy initiatives, funded through a charge on customer bills. C-PACE, operated by the Green Bank, is one of the initiatives supported by the public utilities. Overall, while each state is different, most public utilities have to balance rising consumer demand with government mandated control for carbon output. PACE financing can be a zero-cost option to meet the utilities’ needs.
Each state has different interest groups that may oppose PACE legislation; these interests may range from well-developed groups, such as the Kentucky Coal Association or the California Association of Realtors, to amorphous groups opposing PACE for purely ideological reasons.
Coal industry has an important presence in the state of KY, which is the third largest coal producer in the US. PACE advocates engaged with the coal interests in the state early in the legislative process. It was important to avoid the perception that the PACE effort was a critique of the coal industry’s raison d’etre, but rather present it as a parallel effort. To that effect, the name PACE (Property Assessed Clean Energy) was changed to EPAD (Energy Project Assessment District) to avoid unnecessary semantic debates. To date, several communities in the state of KY have created energy districts and funded projects.
PACE is inherently a local mechanism as it hinges on a municipality adopting the necessary local ordinances and resolutions to enable a PACE transaction. These local laws ultimately stem from a state-enabled PACE law and are intended to interpret the criteria established in the state law.
In terms of timing that it may take to put a local law in place, PACE programs have reported a wide range, anywhere between two weeks to six months, depending on the municipal structure, political culture and, at times, administrative scheduling. Having an existing relationship with a jurisdiction or having a potential PACE project may speed up the process. Typically, a PACE champion would reach out to an economic development director or a city manager. Subsequently, an issue to adopt PACE is added to the City Council (or the Common Council’s) agenda. In some instances, the issue may be first delegated at the sub-committee level and only then be sent to the full City Council hearing. This process may vary from a municipality to municipality.
The following best practices for local laws were identified by the PACE market leaders:
A local law should make it clear what sources of financing can participate in a program (private, public, foundation, etc.) and what administrative models can be explored (e.g. outsourced administrative functions, government administrator, a combination).
It is a best practice to set up programs that are easily replicable across the state. A larger market will attract investors, make it more cost-effective for customers, and obviate the need for local governments to re-create administrative and legal framework from municipality to municipality. A local ordinance is a set of rules, therefore it is important to have a standard set of rules across the state in order to avoid unnecessary barriers to entry. Joint Powers Authorities in CA, Port Authorities in MN and OH and Green Bank in CT are some examples of programs that successfully created scalable markets. There are exceptions to this rule, large metropolitan areas like Los Angeles and San Francisco have pioneered their own programs.
Local ordinances and resolutions should not be too prescriptive in order to allow program administrators to change program rules when necessary, without having to amend a local law. While it is necessary to interpret the state PACE statute, it is important to avoid restrictive criteria (e.g. setting the loan-to-value ratio at 10 %), especially if an ordinance is covering a geographically varied landscape with diverse property types. Additionally, it is a best practice to allow for a third party administrator option as well as a government-administered program. Keeping the ordinance open allows the local government flexibility to adjust to changing market conditions.
Unless a state law requires for the creation of a special district, it is a best practice to take advantage of an existing taxing district (these can also be termed energy districts, assessment districts, or improvement districts depending on a state). Programs, leaning on the existing geographic boundaries and set of rules, tend to be more cost-effective. Creating a new district means establishing a new set of rules, an administrative structure, recruiting a board, and developing an oversight function – all these actions require resources and legal expertise. It is recommended to engage local government departments during ordinance drafting in order to create processes that are accepted by a local finance department, planning department, law department, public works departments, and by local property assessors and collectors. Above all, PACE is a public-private partnership!
Things to consider while writing a local law:
- PACE and third party ownership structures. PACE can unlock the small to medium scale (~200kW) commercial solar market by combining the security and collection mechanic of PACE with traditional Power Purchase Agreements (PPAs). Thus far, several states have put PACE PPAs into practice and empower small business and non-profits to go solar without making a prohibitive upfront investment. Please refer to our PACETalk with CT’s Green Bank and Demeter Power’s website to learn more about PACE PPA and PACE Lease.
- It is not too early to think about securitization. The PACE market is growing and it’s important that the local laws do not hinder future securitization. We strongly recommend that draft local law be reviewed by a law firm with special expertise in your state’s municipal laws to ensure that what is intended can be achieved.
“Fayetteville is committed to an energy future that is cleaner, more efficient, and more reliable. The A2E2-PACE energy financing program is an opportunity for Fayetteville property owners to save energy costs and make their buildings and homes more valuable. A2E2-PACE is creating green jobs that will help build Fayetteville’s future.”Lioneld Jordan, Mayor of Fayetteville, AR.
“I view the Texas PACE as a win-win for our business community and our environment. This bipartisan program will help reduce the costs of doing business and conserve limited Texas energy and water resources.”Bruce Elfant, Travis County Tax Assessor-Collector, Texas.
“The County created a PACE program for both residential and non-residential buildings because we saw the potential for changing the energy/water efficiency marketplace through provision of a powerful financing product. The County has been involved in other energy financing programs through its work with investor-owned utilities and the CA Public Utilities Commission. While financing products developed under this have launched – they have seen limited success. PACE meets a market need re energy financing: it lets owners have a choice in their upgrade, it is easy to use, and it has additional benefits that go beyond traditional financing. The County is now seeing in its residential PACE program since our launch in June of 2015, the kinds of results we hoped we’d see when we planned a launch more than 5 years ago but delayed due to FHFA concerns. Nearly 15,000 projects have been approved in LA County in less than 9 months.”Howard Choy, General Manager, Office of Sustainability, Los Angeles County.
“Our county legislation was attracted to the notion of advancing energy efficiency and renewable energy projects. PACE is a local tool that helps businesses save money.”David Church, Commissioner of Planning, Orange County, New York
“Placer County in California adopted mPOWER, a Property Assessed Clean Energy (PACE) program, to help residential and non-residential property owners lower their energy costs, improve their property value, reduce their impact on the environment, and stimulate the local economy through job creation. We believe that investment in the local economy is a critical step to creating economic resiliency. mPOWER has helped California property owners reduce reliance on foreign fuels and reduce greenhouse gas emissions. Placer County chose to administer its own program to assist its property owners in taking advantage of all available benefits PACE has to offer. mPOWER benefits include terms up to 20 years, 6% fixed interest, low fees, renewable energy credit aggregation for local use, local investment and contractor employment. Through County administration, mPOWER ensures the Placer County Board of Supervisors, property owners, and the public of the highest achievable levels of consumer protection.”Kimberly Hawley, Chief Deputy Treasurer, Placer County, CA
Beth N. Smayda, City of White Plains Common Council, on Why She Advocated for PACE?
The City of White Plains, NY is located in Westchester County, an affluent suburban community adjacent to New York City, and has a population of over 50,000 people. The City has a vibrant commercial real estate base consisting of retail, office buildings, corporations and multifamily. White Plain mayor, Thomas Roach, and the Common Council viewed PACE as a tool to help buildings become more energy efficient and, ultimately, use less energy. His administration and the Council have been very supportive of environmentally friendly initiatives, including bringing the first dedicated bike lanes to Westchester, bringing Zipcars to White Plains, and installing electric vehicle charging stations. Besides being an environmental initiative, PACE was viewed as a draw for businesses to stay or to relocate to White Plains and a way to create more jobs in the growing area of sustainable technology.
On the local level, there was strong political support coming from the Mayor’s office and trickling down to the finance department, legal department and the assessors’ department. The city’s Common Council explored the scenarios of potential delinquencies and defaults and was convinced that the city would not bear much if any risk from authorizing a PACE program. The city was coming out the recession and wanted to avoid over-burdening the city staff with administrative duties for the new program. The Energy Improvement Corporation or EnergizeNY is the sole provider of PACE financing in the State of New York and provided the City with technical assistance throughout the process and is a third-party administrator, qualifying loans for approval and undertaking the financings. As a result, the City, specifically assessors, collectors and the finance department, function as “loan servicers” by recording, collecting and remitting PACE assessment payments.
“Travis County is a forward thinking urban county with a highly active real estate market. Our carefully vetted PACE Program allows free market choices to the real estate professionals, allowing them to be more creative and structure contracts with a better return on investment that is more sensitive to the environment, a win/win.”County Commissioner, Gerald Daugherty
“We were coming out of a recession and budget cuts, so we didn’t want to unduly burden the city staff. Working with the Energy Improvement Corporation as a PACE administrator made it possible for us to ensure that local businesses and other building owners could take advantage of this form of financing to enable their undertaking energy efficiency improvements.”Beth Smayda, White Plains Common Council
A state or local government can establish and administer a PACE program. In fact, the oldest running PACE program is sponsored by county government – Sonoma County Energy Independence program has been active for more than 7 years. Learn directly from Sonoma County how to establish and operate a PACE program.
As the Community Program Manager, Jane operates and administers programs including the Property Assessed Clean Energy (PACE) Financing Marketplace, Green Business Program, Windsor Pay-As-You-Save, and the residential rebate program for Healdsburg Electric. Jane is also the Program Manager for the Sonoma County Energy Independence Program (SCEIP). SCEIP is the longest running PACE program in the nation and offers financing to residential and non-residential properties. It was the first multi-jurisdictional PACE program of its kind. To date, SCEIP has provided over $73 million dollars in financing. Jane works closely with a number of partner agencies, governments, non-profits, contractors and other private entities to accomplish the Division’s goal to promote and deliver solutions necessary to mitigate environmental impacts and address climate change. Through these various resources and programs the reduction of greenhouse gas emissions and local job generation is achieved.
Other examples of government-sponsored programs are: Connecticut’s C-PACE program, administered by the state’s Green Bank, San Francisco’s GreenFinanceSF program, Placer County’s mPower program and others. Find these organizations and more in our member network.PACENation Member Network
“It’s been absolutely worth it! We are working towards our climate goals and reducing greenhouse gas emissions. Economic benefits and job creation is what PACE offers. Sonoma County is not a big county, it’s pretty rural, it’s a large geographical region with not a lot of people, so if Sonoma County can do it, other parts of this nation can do it and be very successful at it!”Jane Elias, Program Manager
This model has been put in practice when a local government recognizes the benefits of PACE and intends to make it available to property owners, but lacks the resources or expertise to sponsor a program in-house. This model has been most recently applied in Montgomery County, Maryland by PACE Financial Servicing, a low cost program administrator, founded by Jessica Bailey. Jessica led the design and management of the C-PACE program at the CT Green Bank. In its first two years, the program financed $75 million in clean energy projects and executed the first securitization of commercial efficiency assets – more than doubling the volume of PACE transactions between 2013 and 2014. Bailey worked from 2004-2012 at the Rockefeller Brothers Fund (RBF), an $800 million foundation based in New York. As the Fund’s program officer for sustainable development, she co-managed a $7 million portfolio of grants focused on combating climate change and promoting clean energy. In 2014, she was named a “Champion of Change” by the White House for solar deployment.
A number of other programs across the country are relying on a similar model. Some examples are:
- Ohio and Kentucky: The Greater Cincinnati Energy Alliance, a non-profit, has set up two PACE programs on both sides of the Ohio river: KY-PACE and GC-PACE. Both programs are administered by the Energy Alliance, which was instrumental is passing the KY’s law.
- Arkansas: Arkansas Advanced Energy Equity program is administered by A2E2, LLC on behalf of the City of Fayetteville, AR. The company is a joint venture between Arkansas Advanced Energy Association (AAEA) and Energy Equity Funding (EEF).
- Missouri: Missouri Energy Initiative, a non-profit, administers a low cost program Show me PACE. The program is expanding across the state. MEI works collaboratively with utilities, academic research institutions, contractors, marketing professionals, technology professionals and legal experts, among others.
Find these organizations and more in our member network.PACENation Member Network
“PACE is the ultimate public-private partnership; Maryland is a great example of that. We have gotten several counties on board and are getting first projects across the finish line, just months after we started. Everything that we do in Maryland is aimed at growing volume in the PACE market.”Jessica Bailey, CEO of PACE Financial Servicing
Genevieve spearheaded the implementation of Connecticut’s newly created C-PACE program at the Connecticut Green Bank from 2012 -2014 and was its Director from 2015-2016. Genevieve drove the growth of the program from 6 to over 115 communities, directly originated and facilitated over $100 million in financing, and launched Connecticut’s “Standard Offer” for private lenders – making Connecticut the largest and fastest growing open-market for C-PACE in the nation. Genevieve is currently a Managing Director as PACE Financial Servicing.
Since the success of the Connecticut’s PACE programs, a number of other state’s recognized the benefits of a statewide PACE program. While not every state has a Green Bank ready to invest in PACE projects, many have active governor’s offices that are well-positioned to spread the expertise to the local governments and convene a coordinated effort. In CO, Governor’s Office has been instrumental in putting together a state-wide program model that enables counties and cities to opt-in to the existing program (COPACE) instead of re-creating a new administrative structure. Similar model was used in Utah as well, where Governor’s Office worked with a local non-profit to create a replicable PACE model. Find CO’s PACE providers and more in our member network.PACENation Member Network
“The Connecticut program is considered the largest and the fastest growing program in the nation. That’s really exciting, because CT, the nutmeg state, is one of the smallest states in the country. We really have just scratched the surface of the potential in our state. We estimate that just the commercial real estate could undergo billions of dollars of improvements. There is lots of runway left to go! We’ve put the core pieces in place that will allow the market to scale”Genevieve Sherman, former Director of Commercial and Industrial Programs at the Connecticut Green Bank
The Texas PACE model has been termed “Connecticut C-PACE program but without state’s resources”. Texas PACE Authority, a non-profit administrator, streamlines the implementation of PACE-funded clean energy projects in Texas using the “PACE in a Box” model. Charlene Heydinger is the president of the Texas PACE Authority, and someone who convened a group of over 130 stakeholder volunteers to design “PACE in a Box”. As the executive director of Keeping PACE in Texas, a trade association created to promote PACE financing, Ms. Heydinger led the commercial PACE legislative effort and the collaborative PACE in a Box design process. PACE in a Box programs have been adopted in three Texas Counties and in the City of Houston. Property owners in PACE districts have access to over $3 billion in capital from the 10 lenders participating in the program or may select their own lenders. Successful expansion efforts are underway in many other local jurisdictions. Learn about PACE in Texas directly from Charlene, who has taking it from a concept form to reality in her homestate.
Michigan has a very similar model that seeks uniformity, scale and bi-partisan support within the state. Lean & Green Michigan allows municipalities to create a PACE district at no cost, with no need for new government staff or lengthy RFP processes, with access to private capital — and to do all of this cooperatively with other local governments, building the regional economy.PACENation Member Network
“We built an enormous business coalition. We started with the banks. We wanted to assure them that their interests will be protected and that they can play in this new economy, if we were successful in creating it. I asked bank’s lobbyist to help me draft a lender consent provision. Before the legislation was even introduced, the Texas Bankers Association agreed not to oppose it!”Charlene Heydinger, President of Texas PACE Authority and Executive Director of Keeping PACE in Texas
In California and Florida, a number of multi-jurisdictional PACE programs are run by private administrators. In California, Joint Powers Authorities (e.g. California Statewide Community Development Authority, the Western Riverside Council of Governments, the Golden State Finance Authority, and the California Enterprise Development Authority, etc) are entities set up pursuant a state law that allow local governments to join together to achieve a common goal, in this case, – make PACE available statewide. Private PACE providers, such as Figtree Financing, Renew Financial, PACE Funding, Ygrene and others have taken advantage of the JPA model to reach scale.
Similar authorities, agencies, district, local development corporations operate similarly in other states, including the Energy Improvement Corporation in New York, the Toledo-Lucas Port Authority in Ohio, or the Green Energy Works, Green Corridor District, or PACE Funding Agency in Florida.
Featured PACE Providers
Figtree Financing is a privately held California PACE program administrator and project capital provider through an exclusive partnership with the California Enterprise Development Authority (CEDA). Figtree partners with local communities to implement a turn-key PACE Program offering legal infrastructure, financing, training, and outreach to property owners and the contractor community. Figtree’s Program is active in 100’s of jurisdictions.
The company was formed in 2010, and began financing commercial PACE projects in late 2011. It was the first PACE Program to complete a multi-jurisdictional bond to fund energy improvements across multiple counties. In 2013 Figtree completed a year-long process to obtain from the California Supreme Court the required judicial validation.
Through February 2016 Figtree Financing completed eight CEDA bond issues. The company has provided PACE financing for property types including retail, office, warehouse, industrial, hospitality, private schools and houses of worship. Projects have primarily encompassed solar, cool roofing, HVAC and LED lighting. Figtree also provides PACE capital for seismic retrofits and water conservation projects.
The Figtree PACE Program is available to commercial property owners and allows up to 20% of a property’s value to be financed for energy efficiency, renewable energy, water conservation upgrades, or seismic retrofits. It is low interest, fixed rate, long term financing that makes the payback of these improvements more attractive to property owners. The financing creates an assessment lien on the property and is repaid as semi-annual installments on a property owner’s tax bill.
E|VEST Florida is the program platform developed by the Florida PACE Funding Agency to administer the program. Using E|Vest Florida’s online capabilities, property owners can apply and receive funding for qualified improvements, contractors can apply to become “authorized” contractors, and potential energy savings and applicable rebates can be determined. E|VEST Florida represents the easiest path to secure financing for energy-efficiency, renewable generation or wind-hardening improvements.
Renew Financial can help governments reach energy and water conservation goals. Hundreds of communities have signed on to participate in Renew Financial’s PACE program called CaliforniaFIRST. Renew Financial is working with CSCDA (California Statewide Communities Development Authority).
Ygrene Energy Fund is a multi-state provider of commercial and residential property assessed clean energy (PACE) financing. Its award-winning YgreneWorksTM program provides immediately accessible 100%, zero down financing for energy efficiency, renewables, water conservation, and, in certain locations, hurricane protection, electric vehicle charging stations and seismic upgrades. YgreneWorks provides property owners with easy access to off balance sheet, non-recourse financing for commercial building upgrades with no out-of-pocket costs, no hidden fees and a low, fixed interest rate. Activating the YgreneWorks commercial PACE program in your community creates jobs, increases economic investment, supports the growth of local contracting firms and reduces commercial property owners’ energy consumption and costs.
Ygrene partners with state and local city and county governments to implement and launch the YgreneWorks program and demonstrate the value and benefits of the YgreneWorks PACE financing to constituents. Ygrene brings an unprecedented level of municipal, legal, financial, operational and underwriting expertise to support energy efficiency and CO2 reduction mandates and generate measurable results for your community—safely and effectively. Ygrene covers all of the associated costs for program implementation and launch.
As one of the first PACE providers to market, Ygrene has deep experience in providing the required infrastructure, including scale financing, robust technology, centralized call center operations, local account management and contractor training and certification. We also have stringent consumer protections and comprehensive market outreach supported by a dedicated team of customer care professionals.
“The success of the YgreneWorks program is a testament to the potential of PACE to accelerate energy efficiency and conservation efforts in commercial real estate,” says Ygrene CEO Stacey Lawson. “We’re excited about helping local governments achieve their energy reduction goals, while offering property owners in multiple states access to easy and affordable financing for clean energy and climate resilient retrofits.”
Since completing its first PACE project in 2013, Ygrene has trained and certified more than 3,000 contractors in more than 240 communities across its multi-state service territory and has passed the $1 billion mark in approved applications for over 21,000 residential and commercial properties. Learn more at www.ygreneworks.com.
Bracken Hendricks CEO, Urban Ingenuity
Andy Holzhauser CEO, the Greater Cincinnati Energy Alliance
Andy S. Levin Founder and Managing Partner of Levin Energy Partners, LLC
Steve Patterson Executive Director of Arkansas Advanced Energy Association
Richard Chien Senior Program Coordinator with the City of San Francisco Department of the Environment
Mike Bahr Co-Founder & CEO, ReNewAll
Brian McCarter CEO of Sustainable Real Estate Solutions, Inc
Jackie Weidman Marketing Director, Urban Ingenuity
PACE Program Functions
There are multiple ways to build a successful PACE program. There are core administrative functions of any program and there are additional functions that can be done internally or be outsourced to for-profit or non-profit partners. Each program, publicly or privately-run, has a core responsibility to implement a PACE assessment, which means placing an assessment in the land record, ensuring there is procedure to collect an assessment and transfer the funds to the original funder, and establishing an enforceable legal mechanism in the event of a delinquency or a default. At its most basic level, a PACE administrator entity would set up the mechanism for a local government’s property taxing office to act as a “loan servicer”.
Other functions of a program administrator could be organized along the lines of the following categories:
PACE program administrator is typically in charge of the legal documents which include local laws (ordinances and resolutions) and documents required for various types of financing arrangements (bonds insurance, indenture, bond purchase agreement, self-financing agreement, bond council opinion, credit enhancement documents, etc.). To minimize costs, PACE administrators can re-use the templates of financing documents in many jurisdictions within the state, given that the local governments within the state have similar underwriting criteria. Standardizing local enabling laws is key. From the perspective of a local government, using a standard enabling law, from a nearby county or city, obviates the need to reinvent the process and allows the municipality to learn from their neighbors. From a PACE financing provider’s and program administrator’s perspective, having standard local resolutions and ordinances makes it easier to reach scale and build the market for PACE more efficiently.
Commercial PACE projects can involve a number of steps for an administrator to keep track of. Some programs have customized Salesforce platforms that they use as a customer relationship management (CRM) tools and a way to store project related documents. Some programs may have unique reporting obligations to a local public utility commission, the Department of Energy or the City Council, therefore, having a systematized cloud or software platform helps programs meet the reporting requirements and track project progress. Across the country, there is a range of cloud and software solutions used, ranging from MS Excel spreadsheets to customizable Salesforce platforms.
Feature: Salesforce platform as a tool to boost project volume
The Salesforce web-based IT tool that provides a program with a set of screens to input and track data on PACE projects in the pipeline. The Greater Cincinnati Energy Alliance customized Salesforce platform to meet the needs of a typical PACE program. The organization offers its version of Salesforce for rent and purchase, please reach out to them directly. Below are examples of two screens showing different data points recorded by the program:
The following screen shows building data, collected for each project.
Market stakeholders definitively agree that energy services contractors are key in reaching a higher volume of commercial PACE transactions. However, since PACE is a relatively new concept, very few contractors have the existing knowledge, experience, and tools to fully-integrate PACE financing in their proposals. Contractors typically focus on short-term payback improvements that can be self-funded by the owner. With PACE, they can expand their business and sell long-term payback projects. In other words, a contractor that understands PACE can now complete projects that were not otherwise financeable through capital budgets or direct bank loans. Programs from CA, MN, MI, to CT and TX are embracing the importance of contractor education.
In Ohio and Kentucky, Greater Cincinnati Energy Alliance, a non-profit administrator, developed a PACE 101, PAC 201 and PACE 301 courses for local energy efficiency and renewable energy contractors. PACE 101 is an hour-long session establishing the basics, while PACE 201 and PACE 301 are four hour-long courses geared to help contractors sell PACE financing. The Energy Alliance trained over 100 contractors and reported that thus far, 80 percent of deals are done by 20% of the trained contractor base. The trainings held by the Energy Alliance were held in centrally located venues, as opposed to busy urban downtown areas, and marketed by the participating municipalities.
A deeper dive on contractor outreach: How to create an early adopter class of contractors who learn how to target eligible buildings and consistently drive repeat project originations.
Featured contributor: Brian McCarter, Sustainable Real Estate Solutions, who designed and implemented contractor training courses in CA, CT and CO.
A contractor training experience in Connecticut, led by Sustainable Real Estate solutions, shows that it takes time and intensive collaboration with early adopter contractors as they learn the PACE project underwriting requirements. However, early success stories quickly circulate in the contractor network and result in accelerated adoption. Experience also indicates that over time, approximately 35% of contractors attending the initial training workshops will engage with the SRS Technical Support Services team and ultimately identify, qualify and develop successful projects. The success of this early adopter class of contractors is crucial to the launch and sustained momentum of a new C-PACE program.
The growing pipeline of projects under review by SRS for C-PACE financing correlates directly with the number and frequency of Contractor Training events. The chart below displays the cumulative number of approved projects, per month.
Essentially, each contractor has to learn three things:
- Learn a new project scenario development method which requires evolution from a typical self-funded sort-term payback focus to a 3rd party financed cash flow based analysis
- Develop a pro-active approach to building owners who are unfamiliar with PACE and are not accustomed to combining deep energy savings with long-term PACE financing that meets building modernization needs while achieving immediate positive cash flow
- Understand local PACE program’s underwriting requirements and approval process.
Successful programs have developed customizable collateral for the various audiences, ranging from the banking community, contractor community to commercial building owners. Videos and succinct one-pagers, have been successful at telling the initial story of PACE. PACENation developed a PACE 101 video, introducing the concept, which can be customized to include a local program’s logo and contact information. Typically, billboards, paid media, and sports stadium advertisement have not been the venue to reach to contractors and building owners. Instead, programs have sponsored luncheons for trade associations, local government professionals, architects, building owners, and legal professionals. The efforts have been focused on developing sales allies among the local chambers of commerce, energy efficiency industry associations, economic development corporations, and other professional associations. Marketing and outreach doesn’t stop here; it can also encompass market segmentation, which means identifying buildings with deferred maintenance issues, high energy users, or specific building types best suited for improvements.
When your PACE program launches, your customers and stakeholders will need to find answers to their frequently asked questions, links to program documents, resources for contractors, and more. The best way to offer these resources is through a dedicated website that provides information for building owners, contractors, municipalities, mortgage holders, and capital providers that are interested in joining your program. Each of these audiences has unique needs. Building owners and homeowners need to know where PACE is available, who is eligible, and how to contact your program to learn more. Consider displaying a map of the areas in which your program operates, like this interactive map from Figtree Financing, for an easy way to show potential customers where you operate. A best practice is to prominently list your program’s eligibility criteria for properties and qualifying projects. CaliforniaFIRST’s website lists all eligible product categories with the option to click on each category for more detailed information. Eligibility criteria for properties is often included in a frequently asked questions section. Your program’s website will also need to provide information to contractors that are interested in signing up and becoming certified. For example, CT’s C-PACE Program lets contractors sign up on the website, offers an FAQ for contractors, and provides co-branded C-PACE marketing materials. For homeowners looking to hire a contractor, the HERO Program and others implemented a contractor directory.
Some program administrators offer web development services as part of their marketing package. But with free or low-cost platforms such as WordPress, Squarespace, or Wix, you can build your own website without knowing how to code. To set up a WordPress site, you’ll just need a web host and a domain name, and you can get started for less than $100 per year. Examples of PACE program websites:
An absolutely essential component of any successful commercial PACE program is a roster of completed PACE projects. Commercial PACE industry has collectively learned that building owners are not going to “come knocking on the door” once the program is established, which means someone needs to originate projects through existing relationships with building owners or provide an on-going support to energy services contractors who are selling PACE directly to building owners. This may involve project meetings with contractors, assistance in term-sheet preparation, doing an initial walk through audit of the building with a contractor, lender consent support, management of the incentives/rebates and tax credit process, and on-call support throughout the project development process. These functions can be managed in-house or outsourced to a project developer entity. In fact, there are market actors who are specifically set up to develop project in municipalities with PACE framework in place. Please search our member to find a project developer near you.
The two most commonly employed models for project developer involvement with the given PACE program are: (1) creating incentives for an originator/developer to bring projects to PACE program by allowing them to recoup the cost through closing fees, and (2) establishing a contractual relationship with a developer to jump start the market by educating building owners, auditors and contractors in the municipality.PACENation Member Directory
PACE projects are predominantly financed by the private sector, with notable exceptions of Sonoma County’s PACE program and CT’s Green Bank. Please refer to the list of financing providers in the Financing 101 section. It is key for an administrator to engage financing providers early on to secure a dedicated source of funding or to get a clear understanding of financing provider’s underwriting guidelines. Some program administrators, Greater Cincinnati Energy Alliance and Urban Ingenuity, for instance, conduct preliminary underwriting of each project and present potential investors with easily financeable packages. This approach can minimize the project development cycle.
The aforementioned functions can be performed by one entity, for-profit or not-for-profit administrator, or by a variety of actors contracted to do specific tasks. PACE financing mechanism is a tool and there is not a single way to build a successful commercial PACE. There is a great variation in how programs are organized. While at one extreme there are statewide, well-resourced, programs with dedicated sources of capital, at the other extreme there are programs that perform only a core administrative function (assessment servicing). Alternatively, there are programs that fall in between the two extremes offering a range of functions from project origination, marketing, to technical underwriting and validation. There are very few examples of a local or state government having the resources and capital to invest in PACE projects or PACE program administration, consequently, the majority local governments across the country would end up looking for a for-profit or a non-profit administrator.
Tax Collectors and Assessors:
Some program administrators would go so far as to say that a single most important stakeholder in a PACE program development process is a tax collector or a tax assessor who is responsible for adding a PACE assessment to a tax roll and collecting it regularly. There is a great deal of variation in terms of the fees charged by the tax collectors. In some municipalities, PACE assessment collection is viewed as part of the job, so no additional fees are collected. In others, fees can be nominal, up-front, on-going, fixed, or variable based on the size of the annual assessment payment. PACE programs’ goals is to minimize the work and fees charged by the collectors. There are legitimate expenses incurred by the tax assessor/collector departments involving, in some places, the cost of modifying existing software to add a PACE assessment to the tax roll, or the cost of sending the collected money by wire or check to a trustee, etc. In Texas, a non-profit statewide administrator, the Texas PACE Authority, is handling billing and collection in-house. PACE assessments are treated as other taxes and assessments and property owners who decide to use the PACE programs are sent a bill by the Texas PACE Authority twice a year. Local tax assessors and collectors do not get involved unless there is a delinquency. Tax collectors’ view is that while there are hundreds of thousands parcels in a given county in Texas on average, there is a very low chance that a few parcels may experience a delinquency or default due to an unpaid PACE assessment. PACE contracts are identical in each county in Texas, which makes it easier for tax collectors and assessors, who have been vocal supporters of PACE.
Beau Engman is recognized as a leader in the drive for sustainability in the built environment. Through top level executive roles with the nation’s largest energy service company, non-profits, and prominent private equity firms, Beau has consistently lead efforts to break down barriers to energy efficiency in the private sector.
In addition to serving as the founder of PACE Equity, Beau serves on the board of PACENation. Previously, Beau was Vice President of Commercial Energy Solutions for Johnson Controls, managing the delivery of energy efficiency solutions to Global 1000 and commercial real estate companies across North America. Before joining Johnson Controls, Beau was co-founder of E2 Capital Partners, a private equity backed provider of financing solutions for energy efficiency projects within major commercial and industrial enterprises. Learn from Beau what it means to develop a PACE project and which programs structures are best suited for project developers like PACE Equity. Find PACE Equity and other project developers in our member network.PACENation Member Network
“When you are putting standardization at the state level and start getting adoption and market awareness, it’s pretty incredible the growth you can have. We are seeing the growth rates in some markets ten-fold by year!”Beau Engman, CEO of PACE Equity
Beau’s white paper “Principles of an Effective Commercial PACE Program” lays out his 5 key features of a successful program. PACE Equity has been an advocate of open-market, low-cost programs throughout the country.
PACE financing is repaid with an assessment added to the property tax bill. Like property taxes and other assessments, current or past due PACE assessments have a senior claim to other property liens, including mortgages. A lender’s consent may be required by state PACE enabling statutes, and even if not, most PACE programs, project funders and building owners themselves require the support of an existing lender before proceeding with a PACE project.
Over 200 institutions have provided lender consent to commercial PACE projects all over the country. Learn best practices for obtaining lender consent from Peter Grabell, Senior Vice President, Financial Services with Figtree Financing, a PACE program administrator in California. He heads the company’s commercial real estate platform, which has financed several dozens of clean energy projects throughout the state on behalf of businesses and not-for-profit enterprises. Mr. Grabell has worked in real estate finance for over 25 years, including as Executive Vice President of Bridger Commercial Funding, where his team originated 1,100 CMBS loans for over $5 Billion that were sourced through relationships with commercial banks. He also advised banks on recovery strategies for problem real estate assets as Managing Director at Clark Street Capital from 2010-2012. Find Figtree and other PACE providers in our member network.PACENation Member Network
PACENation developed a list of institutions who consented to PACE projects and a one pager outlining the reasons for giving lender consentList of Consenting Lenders
Key Terms and Market Lingo
The term “conduit financing” is often used to describe a PACE mechanism. Essentially, a local government functions as a conduit by collecting an obligation from a property owner and passing it on to the project investor, who lent the capital in the first place. A conduit means that funds raised in one market are channeled into a different market, which in this case is a PACE retrofit market.
Bridge financing is often used in a typical PACE transaction to pay for equipment orders and soft costs associated with the project, when PACE financing is not yet available. Once the PACE financing is disbursed, it can pay for the eligible items originally covered by the bridge financing. PACE financing does not directly absorb or refinance a bridge loan; a bridge loan can be repaid by the building owner from the PACE funding disbursements. Bridge financing is typical short-term high-cost financing.
Construction financing is funding that an owner uses to build a project. Typically, construction financing is borrowed against a prospective project. There are numerous lending sources ranging from commercial mortgage brokers, community banks, institutional lenders, to private money. When the construction funds are drawn and the construction of a project is completed, refinancing can take place. In a simple PACE transaction, there is no need for a construction loan, since PACE covers 100% of the expenses. However, there are situations in which a PACE component is just a small part of a larger renovation. In these cases, a PACE disbursement helps a building owner to pay off a portion of the construction loan.
On-demand financing means that a building owner can get a project funded once an application has been approved by the program. In other words, a program has a dedicated source of funds, has a warehouse line with a bank or has a number of financing providers who are willing to fund projects that met certain criteria. There is no uncertainly whether a project that meets the underwriting criteria is going to be financed.
Hard costs are costs associated with the equipment affixed to the building (energy efficiency, renewable energy or water conservation improvements eligible for PACE financing). Soft costs are costs covering the deployment of the system, permit fees, architectural and engineering expenses. Typically, PACE can fund 100% of the project’s hard and soft costs. In some cases, softs costs have been already incurred by the building owner or project developers before PACE financing was sought; soft costs could be reimbursed by PACE financing. Rules for such reimbursements differ from program to program, some allow for up to 18 months to pass after the soft costs were incurred, while others are stricter and limit that time to 3 months.
Open market financing model allows for multiple funders to operate in the same municipality and “bid” on projects, when possible. Also, if a property owner already has a relationship with a local bank or a private funder, she can take advantage of it and fund the project with any funder. Programs that favor open-market financing model generally have relationships with prospective funders. A closed financing models means that there is one dedicated funding provider and all projects in a given locality that met basic underwriting criteria are going to be funded.
Ways to Finance a PACE Project
In this video, Chris Robbins, Managing Director at CleanFund Commercial Capital, stresses that in order to get to scale quickly, it is crucial for local governments to form a relationship with direct lenders and get on the same page in terms of project underwriting.
Chris is responsible for sourcing and financing deep energy retrofit and water conservation projects in commercial office, hospitality, multifamily and private healthcare buildings throughout the United States. His experience spans 24 years in the commercial real estate, internet infrastructure and renewable energy sectors leading sales and business development efforts, raising and deploying capital and general operations. Most recently he was a Vice President at SCIenergy focused on building out the sales and business development organization for their MESA capital platform. Prior to that spent five years as a principal of Appian Capital, a private commercial real estate investment company where he lead the firm’s capital strategy and business development efforts, deploying over $200MM during his tenure. Find CleanFund and other investors in our member network.PACENation Member Network
“The industry starting to pick up on the need to standardize processes, terms, and underwriting guidelines and, most importantly, create educational materials for the various stakeholders involved in the process, so that people are informed as to what PACE is, where it is applicable, and how the process works, so there are no surprises.”Chris Robbins, Managing Director at CleanFund
Sources of Funds in the Commercial PACE market
- Special finance companies were either set up specifically for PACE lending or have dedicated arms focusing on PACE.
Examples: CleanFund Commercial Capital, Hannon Armstrong, Inland Green Capital, BluePath Finance, Structured Finance Associates, Greenworks Lending, PACE Equity, Petros Capital Partners, ReNewAll, Figtree, Ygrene, Samas Capital, Cenergy, Kawa PACE.
- Commercial Money Center Banks
Examples: Wells Fargo, Bank of America, Deutsche Bank
- Regional banks and community development finance institutions begin recognizing the value of PACE for their customers. Community banks view PACE lending as a form of community development and begin playing a role in smaller projects ( $200K range).
Examples: Amalgamated bank, Eagle bank, Enterprise Community Loan Fund, United Bank, Wells Fargo, Presidential Bank, National Co-op bank, Celtic Bank, Jefferson Bank, IBERIABANK, Grand Bank and Trust
- Government funds have been used to fund PACE projects in Connecticut, Sonoma, Placer Counties. Typically, local or state governments do not have the resources to fund PACE projects and even if they do, the government-funded model is not sustainable over the long-term.
To learn more about these and other organization involved in the PACE market, please visit our member network.PACENation Member Network