Financing Clean Energy:PACE, Property Assessed Clean EnergyNadia Ameli               27 th March 2012nadia.ameli@feem.it
Barriers to Energy Efficiency          Lack of information          Uncertainity about the energy savings          Split i...
Financing Clean Energy: PACE                               € Upfront                               € Repayment            ...
Operating Model                                                                                         ContractorStep 1Lo...
PACE provides a new opportunity                New source of capital for EE/RE improvements                Longer repaymen...
28 States + DC authorized PACE                                                                                            ...
Examples of PACE in action in the USA                Program          Source of         Financing         Collection      ...
PACE reduces risk for Banks     Mortgage Default Rate with PACE is 1/30th of Non-PACE                            homes    ...
Potential Issues• Limits on What Can Be Funded – Must be fixed to property and lastat least as long at the financing term;...
Sample Program Budget                         Average project value      15000 $                         Projects         ...
Fannie Mae and Freddy Mac
User-friendly tool: PACE Calculator                                       http://rael.berkeley.edu/financing-italy-IVItali...
On-bill financing (20 states in USA)             • The utility incurs the cost of an efficiency or renewable improvement a...
Conclusions: Opportunity PACE in Europe     •The rate of innovation in clean energy in the EU has not kept     pace with i...
Appendix14
Homeowner Protection     • SIR > 1 (Savings to Investment Ratio)     • Financing should be for high value investment     •...
Lender Protection     • Reserve Fund     • Length of time (PACE assessments should not exceed the life     expectancy of t...
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Concerted Action, Copenhagen

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Concerted Action, Copenhagen

  1. 1. Financing Clean Energy:PACE, Property Assessed Clean EnergyNadia Ameli 27 th March 2012nadia.ameli@feem.it
  2. 2. Barriers to Energy Efficiency Lack of information Uncertainity about the energy savings Split incentives Transaction cost High upfront cost “The Energy Efficiency Gap”1
  3. 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. 4. Operating Model ContractorStep 1Local government establishes clean energyassessment district Step 4 Step 5Step 2 Loan goes to property owner InstallationProperty owners voluntarily opt in to and paymentprogram 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. 5. PACE provides a new opportunity New source of capital for EE/RE improvements Longer repayment period – Up to 20 yearsBENEFITS 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. 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 AuthorityPACE financing authorized by the state* www.dsireusa.org / February 2012
  7. 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 projectsBERKELEY 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 partnerBOULDER 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 projectsBABYLON 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. 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 3.20.1% default rate in PACE programs vs 3.2%in program countiesOnly 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. 9. Potential Issues• Limits on What Can Be Funded – Must be fixed to property and lastat least as long at the financing term; potential limitations if required tobe “cash flow positive”• Cost of Setup – Often administratively difficult to set up, especially forlimited government staff• Scale – A city, town, or small county is probably too small to bringdown costs; fix costs need to be spread over hundreds or thousands ofassessments each year• Access to Convenient Funding – Importance to bring down cost ofcapital
  10. 10. Sample Program Budget Average project value 15000 $ Projects 800 Funding Required 12 M $•PROGRAM DESIGN AND PREPARATION FOR LAUNCH 30000 $(Program design, application processing system)• ADMINISTRATION SERVICES 160000 $(Customer service, review application, marketing)• FINANCE SERVICES 370000 $(Legal and financial expenses, tax collection)ESTIMATED TOTAL COSTS 560000 $
  11. 11. Fannie Mae and Freddy Mac
  12. 12. User-friendly tool: PACE Calculator http://rael.berkeley.edu/financing-italy-IVItalian Calculator estimates thecost or saving to invest inefficiency and solar or otherrenewableHelping homeowners understand thefinancial impacts of financing solarPV, solar thermal, and energyefficiency.
  13. 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 relationshipStrengths 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 requiredWeaknesses • 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. 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 planning13
  15. 15. Appendix14
  16. 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” principle15
  17. 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)16

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