Among the many stories of the clean-energy revolution, some good, some not-so-much, there is one initiative that is currently growing at an exponential rate. This week, clean-energy professionals packed a conference held in Denver to advance a movement centered on “PACE-financing” which, in a matter of a few years, has already driven tens of thousands of energy upgrades for homes and businesses. Yesterday, Colorado Governor John Hickenlooper addressed “PACE Nation” and extolled the program’s many economic, social, and environmental virtues.
“I couldn’t be more enthusiastic about having you guys all here—Broncos country,” said Gov. Hickenlooper, referring to Denver’s recent Superbowl victory. “The Broncos won because they worked together, and if you look at what we’re all doing around sustainable energy—making sure we are addressing this global issue of climate change in pragmatic, cost-effective ways—it’s [really about] everybody working together. I think that’s a huge part of what’s going on with PACE. It’s that collaborative ability to begin to show the public this isn’t just about burning less hydrocarbons—it’s also about saving money and putting it into people’s household budgets or commercial property owner’s budgets; it’s about economic development; it’s about job growth; and it is about a sustainable energy future.”
“This isn’t just about burning less hydrocarbons—it’s also about saving money; it’s about economic development; it’s about job growth; and it is about a sustainable energy future.”—Gov. John Hickenlooper
The conference was produced by PACE Nation, the leading national nonprofit advocacy group for “Property Assessed Clean Energy,” a means for property owners to leverage future energy savings to pay for clean-energy upgrades. The financing is structured as a special tax assessment and includes eligible property upgrades such as solar, high-efficiency HVAC, insulation, and LED lighting. PACE assessments carry significant triple-bottom line benefits, and in large part, the innovation has been accepted as a new, investment-grade asset class. Consequently, adoption has exploded.
“We’ve seen PACE activity grow on an exponential curve,” stated Mike Lemyre, Senior Vice-President of Ygrene Energy Fund, a leading multi-state provider of clean-energy financing. “More than 82,000 properties have embraced PACE and upgraded their homes and buildings to higher levels of efficiency and renewable energy generation—there’s really a revolution taking place.”
Greater than $1.6 billion in residential clean energy projects have been financed with most of the activity taking place in the last 2-3 years. Ygrene Energy Fund and Renovate America are two leading firms supplying PACE financing for homeowners, in addition to Renew Financial and several others. Ygrene operates a multistate platform in California, Florida, and Georgia, and Renovate’s HERO program is located throughout California. Renovate has financed the most residential PACE projects and recently announced the creation of more than 10,000 local jobs since their program launch 4Q 2011.
“What you see in California is the power of momentum and proof of concept,” stated Ari Matusiak, Executive Vice-President of Renovate America. When residents gain access to PACE, it becomes “a mechanism for communities to accomplish their goals.” Matusiak also mentioned the need for establishing consumer protections and more standards for market confidence.
“For developers, PACE is particularly attractive as a supplementary source of upfront-financing which adds instant equity and helps get projects over the finish line.”
Commercial PACE, or “C-PACE,” firms include PACE Equity, Clean Fund, Greenworks Lending, and Ygrene among others. In addition to California, successful C-PACE programs have been launched in Connecticut, Missouri, and Florida. To date, 734 commercial properties, such as office buildings, multifamily, and small retail, have installed $252 million of mostly energy efficiency upgrades. Buildings owned by nonprofits, like churches, and even government-owned properties have utilized PACE in addition to being leveraged by developers to perform gut rehabs and even new construction. For developers, PACE is particularly attractive as a supplementary source of upfront-financing which adds instant equity and helps get projects over the finish line.
Two tracks: commercial and residential
There are significant differences in the way C-PACE and residential PACE are marketed and sold. C-PACE projects need custom handling by project originators, clean energy companies, and program administrators. These projects are usually dealt with on a case-by-case basis, whereas residential PACE projects are treated with a more “one-size-fits-all” approach. Successful residential programs utilize automated technology platforms to underwrite and approve financing for homeowners in a matter of minutes. One innovation being pioneered by Ygrene allows for smaller C-PACE projects (up to $300,000) to be folded into their residential underwriting track, what the firm refers to as “resi-mercial.” Often times there are difficulties in finding funding for smaller commercial projects and this blending of C-PACE and R-PACE is a welcome evolution.
“We’ve never seen a junior-lien commercial PACE deal done. We just haven’t. It hasn’t worked yet.”—Jessica Bailey, Greenworks Lending
In the opening plenary of the summit, some concerns were expressed regarding a proposed regulatory change in how PACE assessments are treated as either super-senior liens (like a property tax) or as subordinate to primary mortgages.
Jessica Bailey of Greenworks Lending urged caution. “The concern is that if the residential market starts moving towards a subordination piece at the policy level and we start telling states, ‘Hey, it’s okay, pass junior-lien PACE,’—we’ve never seen a junior-lien commercial PACE deal done. We just haven’t. It hasn’t worked yet.”
It was suggested that C-PACE needs the competitive advantage that the super-senior lien status provides.
“In an environment where politics are increasingly becoming divisive, the PACE clean-energy concept is a shining beacon of bipartisan support.”
Spreading at a fast clip
In an environment where politics are increasingly becoming divisive, PACE is a shining beacon of bipartisan support. PACE enabling legislation has already passed in 30 states covering 80% of the U.S. population with approximately 15 active programs in operation. But more importantly, perhaps, is the informed prediction that PACE programs will soon be available to at least 90% of America’s property owners—and it all comes down to its wide appeal.
From its inception, PACE pioneers immediately recognized its unique political positioning and began to promote its job creation and revenue neutral attributes in addition to the environmental benefits associated with clean-energy. Consequently, PACE legislation has mostly enjoyed a “transpartisan allure” successfully passing in both Republican and Democratically-controlled legislatures.
“It has no mandates, no subsidies, states’ rights and local control,” said Jeff Tannenbaum in a Bloomberg article published last year. “[PACE financing] speaks to the Tea Party platform, as well as the Democratic Party’s program of job creation.”
Tannenbaum, founder and president of Fir Tree Partners, a New York-based investment firm with $13 billion in assets, helped found PACE Now, which is now officially re-naming itself PACE Nation.
Throughout the evolution of PACE, Tannenbaum’s organization has acted as the central nexus for industry stakeholders attempting to metabolize regulatory setbacks, surmount legal hurdles, and promote efforts to spread the evangel.
“[PACE Nation] is a movement driven by an innovative funding mechanism that, as some expressed, will eventually become a part of every real estate transaction.”
“PACE Nation is a great vehicle for individuals and organizations to join and to share their experience and to share their knowledge and to create a movement that allows them to achieve whatever their goals are,” stated David Gabrielson, executive director of the advocacy group. “Making money, saving the planet, creating jobs…but whatever those goals are, there are none of them that are mutually exclusive.”
The PACE Nation Summit 2016 was the first of its kind and scale. There was a palpable sense that the nearly 400 industry leaders in attendance were witness to the start of a national movement—it’s a movement driven by an innovative funding mechanism that, as some expressed, will eventually become a part of every real estate transaction.
“What was evident to me early on was the chance to create a product, a company, and an industry, and do it all at one time, is an exceedingly rare, and even a once-in-a-lifetime opportunity.”—Mike Lemyre, Ygrene Energy Fund
“What was evident to me early on was the chance to create a product, a company, and an industry, and do it all at one time, is an exceedingly rare, and even a once-in-a-lifetime opportunity,” said Lemyre.
If the data-backed expansion and growth projections for PACE financing are true, we can be safe to assume that PACE will be a real “game-changer” for clean-energy development. It already is a proven job creator. And, it’s a triple-bottom line way to significantly mitigate climate change. Many expert observers have concluded that in the final analysis PACE will be seen as having been a fundamental contributor to the much-needed transformation of America’s energy portfolio.
Byron DeLear is a clean-energy executive and is program administrator for clean energy programs, including PACE programs, in Missouri and Arkansas.