PACE: Property Assessed Clean Energy. A New Way to Finance Clean Energy Improvements

Transcription

1 PACE: Property Assessed Clean Energy A New Way to Finance Clean Energy Improvements

2 INTRODUCTION Presentation by Chris Meyer, RA LEED AP Greater Cincinnati Energy Alliance Energy Efficiency Non-profit founded in 2009 The Energy Alliance s mission is to facilitate investment in energy efficiency for homeowners, nonprofit organizations, and commercial building owners through outreach and education, project management, and financing solutions. 2

3 CLEAN ENERGY FINANCING A number of unique tools exist to finance clean energy improvements to buildings: Performance contracting Equipment leases Power purchasing agreements

4 WHAT IS PACE? PROPERTY ASSESSED CLEAN ENERGY Program to help finance energy efficiency and renewable energy upgrades Works through property tax assessment Allows property owners to self-assess added fee to make building improvements Creates revenue stream to leverage bond market

5 PACE BENEFITS TO PROPERTY OWNERS No net out-of-pocket expense 100% of project cost can be financed Including up front costs like energy audit, design fees, and post-construction costs like commissioning Duration of assessment can be extended to years Multiple small projects are aggregated and revenue stream from tax payments is used to access bond market

6 UNIQUE PACE BENEFITS Assessment is attached to building, not borrower Assessment not recorded as debt borrower Assessment transfers with building sale Multi-tenant properties with triple-net leases can pass on operating costs to tenants

7 PACE BENEFITS TO PROJECT By stretching out the payments over years, it is possible to achieve positive cash flow on a number of energy efficiency upgrades PACE allows for deep retrofits Renewable HVAC Air Sealing Lighting Low-Cost / No-Cost

8 PACE VALUE TO BOND HOLDERS Private bond market ultimately holds PACE debt Energy savings strengthen the ability to pay back the debt Tax assessment makes PACE bonds very secure Property owners must get mortgage lender consent before PACE assessment is placed on property

9 PACE VALUE TO GOVERNMENT OFFICIALS Powerful economic development tool Money that would otherwise be sent to utilities is retained for local economy Local workforce performs construction work Private debt funds the projects so there is limited exposure to risk & debt 9

10 HISTORY OF PACE: ORIGINS Began with pilot programs in California in 2008 Expanded with ARRA funding 28 States have adopted legislation Collective pipeline with 50+ million in funded projects

11 HISTORY OF PACE: RESIDENTIAL PROGRAMS Most PACE programs do not apply to residential programs Fanny and Freddie will not buy residential mortgages with selfassessed debt that is senior to mortgages They currently issue ~ 80% of residential mortgages

12 HISTORY OF PACE: SPECIAL IMPROVEMENT DISTRICTS The special improvement district is century-old legislation It creates a district to make improvements and only the members of the district pay for the improvements Common SIDs: Sewer, urban forestry, BID

13 HISTORY OF PACE: PACE legislation typically modifies Special Improvement Districts to create an ESID ENERGY-SID Property owner voluntarily joins district Non-contiguous district

14 PACE PROGRAMS All PACE programs requires 4 items: 1. Enabling legislation 2. Program manager Verify that project qualifies for program Coordinates tax assessment Insures tax assessment transmitted to funder 3. Building owner with a project 4. Project Funder

15 WHO CAN USE PACE? Commercial Building Owners Industrial facilities Make industrial processes more efficient Multi-family building (<5) Agricultural buildings and processes Not-for-profits & Government buildings Organizations that do not pay taxes are eligible for PACE Every building is listed on assessor s rolls

16 WHAT TYPE OF PROJECT QUALIFIES? Projects that demonstrate cost savings reduced energy energy generation End-of-Life cycle equipment replacement High Performance buildings Projects to small to be financed by ESCO 16

17 PACE ON A NEW BUILDING? Legislation permits it New buildings have no history of energy use Create an energy model to define savings Compare savings of highly efficient project to project built to code-minimum standards Capital makes the rules Funding source can have restrictions on use of capital

18 PACE ON A REHAB PROJECT? Program is designed to retrofit existing functioning buildings Not designed for rehabilitation projects on derelict buildings, but it is possible No history of energy savings in empty building An energy model can be used to simulate project costs Financial strength of borrower will define eligibility

19 CAN PACE PAY FOR LEED? Statutory language prevents PACE from paying for LEED rating. The energy improvements and renewable energy elements can be structured to earn LEED points, so long there is positive ROI Tailor project to earn specific points (EBOM, IAQ) WE prohibited by statutory language

20 PACE IN KENTUCKY Kentucky does not have state-wide enabling legislation Energy Alliance, and other groups, are in very early stages of organizing legislation 20

21 PACE IN OHIO State-wide legislation passed in 2009 Cleveland has an inactive program Toledo has one of the most successful PACE programs in the country Cincinnati 1 st round of legislation passed in May, final round to be passed this fall 21

22 PACE IN CINCINNATI Cincinnati City Council: WE MOVE that Cincinnati adopt a goal of reducing the consumption of energy in the built environment by 15 percent by 2020, and having solar energy installed on 20 percent of rooftops (residential and commercial) by WE FURTHER MOVE that the administration establish a Property Assessed Clean Energy (PACE) financing program for renewable energy and energy efficiency investments in Cincinnati. 22

23 GC-PACE IN CINCINNATI Partnership between Energy Alliance and Port of Cincinnati (economic development agency) Port Develop underwriting standards Facilitate delivery of projects to bond market Energy Alliance Develop and administer program criteria Verify energy efficiency components Facilitate overall program coordination 23

24 AGENCY RELATIONSHIPS IN GC-PACE PROPERTY OWNER CON- TRACTOR AUDITOR & TREASURER ARCH. ENG. CM. PROGRAM COORDINATION ENERGY ALLIANCE PROJECT FINANCING PORT ESID BOARD BOND 24

25 GC-PACE: DOES IT WORK FOR MY PROJECT? The ability to participate in the PACE program is dependent on borrower s financial strength and energy savings Goal is to have a positive ROI over the life of the assessment Improvements must be permanently attached to the building Length of the assessment cannot exceed life of the improvements 25

26 GC-PACE PROCESS 1. Complete pre-application to insure project meets basic qualifications 2. Develop a scope of work that identifies energy savings Similar to an ASHRAE Audit 3. Property owner choses to have PACE fund the project Tax Auditor places assessment on property 4. Energy Alliance provides initial financing for entire project (including design) Energy Alliance repaid by Port s bond issuance Port is repaid via property tax 5. Begin Construction 26

27 GC-PACE ELSEWHERE IN OHIO PACE currently only available in Cincinnati Port and Energy Alliance are not bound by same geographic restrictions Any city can adopt legislation 27

28 PACE SAMPLE CASE STUDY 1 Sample Project 1 Savings-Investment Ratio Cost Annual energy Savings Level 1 ECMs - high priority $ 220,453 $ 47,317 Level 2 ECMs - medium priority $ 345,000 $ 35,442 Level 3 ECMs - low priority $ 459,480 $ 20,980 Program 2% Fee* $ 20,000 - Total $ 1,044,933 $ 103,739 $1,044,933 PACE Assessment Rate* Annual Investment 15 years 5.5% $ 102,456 $1,044,933 Loan Rate* Annual Investment 7 years 5.5% $ 180,189 * Bond rate and Fees still in development and subject to change 28

29 PACE SAMPLE CASE STUDY Sample Project 2 Cost Annual energy Savings 188 kw PV array* $ 540,000 $ 35,535 Federal 30% Tax Credit $ (160,000) Interior LEDs $ 40,000 $ 8,293 Program Fees 2.25%** $ 10,000 Total $ 430,000 $ 43,828 $430,000 PACE Assessment Rate* Annual Investment 5.5% $ 42,156 *Solar panel savings does not include any income from SRECs ** Bond rate and Fees still in development and subject to change 29

30 WHY USE PACE OVER OTHER FUNDING SOURCES? Information gaps? No funding available for project? Not eligible for traditional loans? Split incentive to upgrade? Project doesn t cash flow? Selling the property? Energy info required PACE/energy savings can pay for entire project Unlimited private capital through bond market Cost can be passed on to tenants Long time frame brings positive ROI Debt transfers to new owner 30