Property Assessed Clean Energy            (PACE) Municipal Energy Financing in the United States                      John...
PACE Financing• Overview• Rationale• Potential• ChallengesMunicipal	  Energy	  Financing:	  Lessons	  Learned     h6p://bi...
Overview                              Sells	  bondsInstalls	  energy	  improvements                          Pays	  for	  ...
Overview                     PACE Process   PACE	  program	       adver?sed
Overview                     PACE Process   PACE	  program	     Informa?on	       adver?sed             sessions
Overview                     PACE Process   PACE	  program	     Informa?on	     Sign-­‐     adver?sed             sessions...
Overview                     PACE Process   PACE	  program	     Informa?on	     Sign-­‐   Energy	       adver?sed         ...
Overview                             PACE Processy	           Retrofit	  s             contract
Overview                             PACE Process                                Retrofit	  y	           Retrofit	        ...
Overview                             PACE Process                                Retrofit	         Owner	  pays	  y	      ...
Rationale            Financing Mismatch              5-­‐6	  years                5-­‐6	  years                           ...
RationaleSolution: Property Tied Financing            5-­‐6	  years                5-­‐6	  years                          ...
Rationale            Information Disjointed              State	           U?lity	               rebate             rebate ...
Rationale     Solution: One-stop Shop                           U?lity                            State                PAC...
Potential             PACE Status (2010)        • 21 states        • 4 established municipal programs            • Almost ...
Potential               PACE Status (2010)                                         Spending	  in	  2009       PACE	  Progr...
Potential                             PACE Potential                                                  Future	  Spending?  ...
Challenges & Solutions• Challenge: Fannie Mae objects• Solutions • Lawsuits • Legislation • Alternatives• Challenge: Parti...
Challenges & Solutions   Issue: Fannie Mae Objects                        Lender Letter LL-2010-06                        ...
Challenges & Solutions   Issue: Fannie Mae Objects                        Lender Letter LL-2010-06                        ...
Challenges & Solutions         Solution #1: Lawsuits       • FHFA, Fannie, & Freddie sued by:         • California Attorne...
Challenges & Solutions      Solution #2: Legislation       • The PACE Assessment Protection Act of         2011         • ...
Challenges & Solutions    Solution #3: Alternatives       • On-bill financing         • Utility finances improvements       ...
Challenges & Solutions    Solution #3: Alternatives       • Junior liens (e.g. Maine)         • Does not come before mortg...
Challenges & Solutions    Solution #3: Alternatives       • Subsidized home retrofits         • E.g. weatherization       •...
Challenges & Solutions    Solution #3: Alternatives       • Loan loss reserves         • Can insulate lender       • Drawb...
Challenges & Solutions    Solution #3: Alternatives       • Loan insurance         • Insulates lenders         • Low cost ...
Challenges & Solutions Issue: Participation v. Savings
Challenges & Solutions         Minimum Standards?       • Minimum expenditures, e.g. $3,000                               ...
Challenges & Solutions         Minimum Standards?       • Minimum expenditures, e.g. $3,000       • Minimum energy savings...
Challenges & Solutions         Minimum Standards?       • Minimum expenditures, e.g. $3,000       • Minimum energy savings...
Challenges & Solutions         Minimum Standards?       • Minimum expenditures, e.g. $3,000       • Minimum energy savings...
Thank you!John Farrell                        Other Resources  www.energyselfreliantstates.org   •PACENOW.org  jfarrell@il...
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PACE Financing 101 and Status

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An overview of PACE financing for residential energy improvements, its potential, and the policy and legal barriers to implementation.

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PACE Financing 101 and Status

  1. 1. Property Assessed Clean Energy (PACE) Municipal Energy Financing in the United States John Farrell, Director Energy Self-Reliant States and Communities program jfarrell@ilsr.org 612.276.3456 x210 Adapted from a presentation to the Smart Energy Dialogue Berlin | June 9, 2010 Photo credit: Flickr user OZinOH
  2. 2. PACE Financing• Overview• Rationale• Potential• ChallengesMunicipal  Energy  Financing:  Lessons  Learned h6p://bit.ly/munienergyfinance
  3. 3. Overview Sells  bondsInstalls  energy  improvements Pays  for  property  Pays  with  long-­‐ improvements term  property  tax  assessment Assesses   property  for  cost   plus  interest
  4. 4. Overview PACE Process PACE  program   adver?sed
  5. 5. Overview PACE Process PACE  program   Informa?on   adver?sed sessions
  6. 6. Overview PACE Process PACE  program   Informa?on   Sign-­‐ adver?sed sessions up
  7. 7. Overview PACE Process PACE  program   Informa?on   Sign-­‐ Energy   adver?sed sessions up audits
  8. 8. Overview PACE Processy   Retrofit  s contract
  9. 9. Overview PACE Process Retrofit  y   Retrofit   completed,s contract City  pays
  10. 10. Overview PACE Process Retrofit   Owner  pays  y   Retrofit   completed, assessment,  s contract City  pays enjoys  energy  savings
  11. 11. Rationale Financing Mismatch 5-­‐6  years 5-­‐6  years 10-­‐15  years 5-­‐6  years
  12. 12. RationaleSolution: Property Tied Financing 5-­‐6  years 5-­‐6  years 10-­‐15  years
  13. 13. Rationale Information Disjointed State   U?lity   rebate rebate U?lity   audit Energy   Nonpro Star   fit   ra?ng energy   Federal   guide tax   credit
  14. 14. Rationale Solution: One-stop Shop U?lity State PACE   program Federal Nonpro fit
  15. 15. Potential PACE Status (2010) • 21 states • 4 established municipal programs • Almost $40 million spent • 2,000 properties served Legend Recently  enacted   PACE  laws Pre-­‐2009  statutes   suppor?ng  PACE
  16. 16. Potential PACE Status (2010) Spending  in  2009 PACE  Programs $40 Utility  Energy Efficiency  Programs $3,600 $0 $1,000 $2,000 $3,000 $4,000 Millions
  17. 17. Potential PACE Potential Future  Spending? PACE  Programs  2010 $300 PACE  Programs  2011 $600 Utility  Energy Efficiency  Programs $3,600 $0 $1,000 $2,000 $3,000 $4,000 Millions
  18. 18. Challenges & Solutions• Challenge: Fannie Mae objects• Solutions • Lawsuits • Legislation • Alternatives• Challenge: Participation v. Energy Savings
  19. 19. Challenges & Solutions Issue: Fannie Mae Objects Lender Letter LL-2010-06 May 5, 2010 TO: All Fannie Mae Single-Family Sellers and Servicers Property Assessed Clean Energy Loans PACE loans generally have automatic first lien priority over previously recorded mortgages. The terms of the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that have senior lien status to a mortgage. As PACE programs progress through the experimental phase and beyond, Fannie Mae will issue additional guidance to lenders as may be needed from time to time. Lender letter: http://tinyurl.com/3y2g4mw
  20. 20. Challenges & Solutions Issue: Fannie Mae Objects Lender Letter LL-2010-06 May 5, 2010 TO: All Fannie Mae Single-Family Sellers and Servicers Property Assessed Clean Energy Loans 1. We don’t come second. 2. This isn’t a public good. 3. “We’re buried in a subprime mess. Nothing new, please.”
  21. 21. Challenges & Solutions Solution #1: Lawsuits • FHFA, Fannie, & Freddie sued by: • California Attorney General • Sierra Club • Sonoma County, CA • Town of Babylon, NYSmall victory: Aug. 31, 2011 ruling requires FHFA to start over with formal rulemaking
  22. 22. Challenges & Solutions Solution #2: Legislation • The PACE Assessment Protection Act of 2011 • Fannie Mae and Freddie Mac must revise their lending standards to conform with Department of Energy PACE Guidelines from May 2010. • FHFA, Fannie, and Freddie may not discriminate against any borrower in a community with a PACE program. Photo credit: Flickr user katieharbath
  23. 23. Challenges & Solutions Solution #3: Alternatives • On-bill financing • Utility finances improvements • Utility ties billing to the meter instead of individual • “Pay As You Save” (now defunct) • Drawbacks • Requires utility participation • Utility billing system may need upgrade
  24. 24. Challenges & Solutions Solution #3: Alternatives • Junior liens (e.g. Maine) • Does not come before mortgage in event of default • Still tied to property tax bill • Drawbacks • No secondary market • Can’t transfer between owners?
  25. 25. Challenges & Solutions Solution #3: Alternatives • Subsidized home retrofits • E.g. weatherization • Drawbacks • Who pays for subsidy?
  26. 26. Challenges & Solutions Solution #3: Alternatives • Loan loss reserves • Can insulate lender • Drawbacks • Who pays for reserve?
  27. 27. Challenges & Solutions Solution #3: Alternatives • Loan insurance • Insulates lenders • Low cost • Drawbacks • Offered to FHFA, but rejected • No private market right now
  28. 28. Challenges & Solutions Issue: Participation v. Savings
  29. 29. Challenges & Solutions Minimum Standards? • Minimum expenditures, e.g. $3,000 Energy  savings Par?cipa?on$3,000
  30. 30. Challenges & Solutions Minimum Standards? • Minimum expenditures, e.g. $3,000 • Minimum energy savings, e.g. 10% Energy  savings Par?cipa?on$3,000 10%
  31. 31. Challenges & Solutions Minimum Standards? • Minimum expenditures, e.g. $3,000 • Minimum energy savings, e.g. 10% • Efficiency threshold, e.g. EPA Yardstick Energy  savings Par?cipa?on EPA$3,000 10% Yardstick
  32. 32. Challenges & Solutions Minimum Standards? • Minimum expenditures, e.g. $3,000 • Minimum energy savings, e.g. 10% • Efficiency threshold, e.g. EPA Yardstick • Retrofit Mandate to a min. standard Energy  savings Par?cipa?on EPA Yards?ck  $3,000 10% Yardstick mandate
  33. 33. Thank you!John Farrell Other Resources www.energyselfreliantstates.org •PACENOW.org jfarrell@ilsr.org •This report: johnffarrell 612-276-3456 x120 Municipal  Energy  Financing:  Lessons  Learned h6p://bit.ly/munienergyfinance
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