PACE financing

In areas with PACE legislation in place, governments offer a specific bond to investors or in the case of the open-market model, private capital providers purchase a tax lien from taxing authority and provide financing to the building owners to put towards an energy retrofit.

The financings are repaid over the selected term (over the course of somewhere between 5 and 35 years) via an annual assessment on their property tax bill.

The primary benefit of this approach is that the financing does not rely upon property owner credit and the project costs may be lower due to the provider retaining the tax incentives and passing the benefit on to the property owner as a lower lease or services payment.

This allows property owners to begin saving on energy costs while they are paying for their solar panels.

Voluntary assessments for repaying municipal bonds have been attached to property taxes since the early 1800s to fund projects for public good, such as sidewalks, fire stations, and street lighting.

University of California, Berkeley led the development of the program via the "Guide to Energy Efficiency & Renewable Energy Financing Districts for Local Governments" contributed by Cisco DeVries, Ann Livingston and Lestis Private Capital Group's Matthew Brown.

[8] Berkeley's PACE program was recommended as an alternative to the solar bonds authority approved by neighboring San Francisco voters in 2001 in conjunction with the City's Community Choice Aggregation program, which is being implemented in both San Francisco and Sonoma counties.

[12][13] In August 2015, the Department of Housing and Urban Development (HUD) announced that it intends to require liens created by energy retrofit programs to remain subordinate to loans guaranteed by the Federal Housing Administration (FHA) and that it would be issuing guidance on how to handle the transfer and sale of homes with a PACE assessment.

Additionally, most PACE programs made possible through public-private partnerships rely on private capital to source financing.

It is also an opt-in program, so only those property owners who choose to participate are responsible for the costs of PACE financing.

[1][10][18] PACE enables individuals and businesses to defer the upfront costs that are the most common barrier to energy efficiency or renewables installations.

A homeowner’s ability to pay is currently based primarily on their mortgage and property tax payment history as well as the requirement that there are no recent bankruptcies.

[26][27][28] When the remaining payments are unable to be assumed by the new buyer, this renders the PACE financing to a position more similar to that of a traditional lending product.

[34] Properties encumbered with PACE obligations are not eligible for Federal Housing Administration (FHA) insured financing.