I’ll be covering the potential for the innovative Green building program known as Property Assessed Clean Energy (PACE) in an upcoming energy efficiency video. For now, here’s a quick outline –
PACE Programs provide a powerful tool for the number one approach to jumpstarting the economy and fighting climate change – energy efficiency in new buildings. A great example is the recent retrofit on the Empire State Building, which is expected to save 40 percent of energy costs, and payback the investment in 3 years.
PACE programs provide upfront money to make energy efficiency or renewable energy upgrades on existing plants or buildings. Those loans are repaid thru a property tax assessment, with the payback being smaller than the total savings that owners will be getting from the more efficient buildings. Result, huge numbers of jobs, lower costs for owners, lower emissions from buildings.
Because the economics are so favorable – building owners and developers are coming together to promote PACE – and the latest iteration of the model comes from a California startup called Ygrene –
As envisioned for Miami and Sacramento, the plans will work like this:
Ygrene and its partners will gain exclusive rights for five years to offer this type of energy upgrade to businesses in a particular community. They will market the plan aggressively, helping property owners figure out what kinds of upgrades make sense for them.Lockheed Martin is expected to do the engineering work on many larger projects.
The retrofits might include new windows and doors, insulation, and more efficient lights and mechanical systems. In some cases, solar panels or other renewable power might be included. For factories, the retrofits might include new motors or other gear.
Short-term loans provided by Barclays Capital will be used to pay for the upgrades. Contractors will offer a warranty that the utility savings they have promised will actually materialize, and an insurance underwriter, Energi, of Peabody, Mass., will back up that warranty. Those insurance contracts, in turn, will be backed by Hannover Re, one of the world’s largest reinsurance companies.
As projects are completed, the upgrade loans, typically carrying interest rates of 7 percent, will be bundled into long-term bonds resembling those routinely issued by governmental taxing districts. Barclays will market the bonds. Retirement funds have expressed interest in buying these bonds, which will be repaid by tax surcharges on each property that undergoes a retrofit.
Since governments around the world are strapped for cash, and federal investments in new energy are under threat from suddenly cost-conscious congressional “conservatives”, new energy will have to find ways to remake the economy using private capital. PACE fits with this approach.
“These investments are 100% private capital. There is no government debt or cost involved. The markets can supply this financing because the economics are sound, engineering performance is insured, the security is strong, and clean energy capital assets are profitable,” said Brian McCarthy, CEO of Energi Insurance Services.
Property Assessed Clean Energy (PACE) legislation enables property owners to accept a voluntary tax assessment as a means of repaying upfront financing of energy efficiency and renewable energy improvements. Twenty-six states in the United States, along with Australia, and New Zealand, have enacted legislation enabling the secure and scalable financing PACE structure.
The Green Corridor group of cities, initiated by the Town of Cutler Bay in Miami-Dade, Florida, and Sacramento, CA are the first municipalities to sign contracts with the Consortium’s California-based PACE finance administrator, Ygrene Energy.
“The PACE Commercial and Industrial Program brings the Green Corridor a privately financed jobs program that will bend the emissions curve in Miami-Dade County and make the Green Corridor an example to the rest of country of what is possible, especially at a time when our construction trades so desperately need the work,” said Steve Alexander, leader of Miami-Dade’s Green Corridor District.
The U.S. Business Council for Sustainable Development, a U.S. industry partner, has organized its building owner members to retrofit their properties and operations, as PACE financing becomes available:
No money down is good.