pace financing 101 and status
TRANSCRIPT
Municipal Energy Financing in the United States
John Farrell, DirectorEnergy Self-Reliant States and Communities program
[email protected] x210
Adapted from a presentation to the Smart Energy DialogueBerlin | June 9, 2010
Property Assessed Clean Energy (PACE)
Photo credit: Flickr user OZinOH
• Overview• Rationale• Potential• Challenges
Municipal Energy Financing: Lessons Learnedh6p://bit.ly/munienergyfinance
PACE Financing
Installs energy improvements
Sells bonds
Pays for property improvementsPays with long-‐
term property tax assessment
Assesses property for cost plus interest
Overview
PACE program adver?sed
PACE ProcessOverview
PACE program adver?sed
Informa?on sessions
PACE ProcessOverview
PACE program adver?sed
Informa?on sessions
Sign-‐up
PACE ProcessOverview
PACE program adver?sed
Informa?on sessions
Sign-‐up
Energy audits
PACE ProcessOverview
Retrofit contract
Energy audits
PACE ProcessOverview
Retrofit contract
Retrofit completed,City pays
Energy audits
PACE ProcessOverview
Retrofit contract
Retrofit completed,City pays
Owner pays assessment,
enjoys energy savings
Energy audits
PACE ProcessOverview
10-‐15 years
5-‐6 years 5-‐6 years
5-‐6 years
Financing MismatchRationale
10-‐15 years
5-‐6 years 5-‐6 years
Solution: Property Tied FinancingRationale
U?lity rebate
State rebate
Federal tax
credit
Nonprofit
energy guide
U?lity audit
Energy Star ra?ng
Information DisjointedRationale
U?lity
PACE program
Federal
Nonprofit
State
Solution: One-stop ShopRationale
• 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
PACE Status (2010)Potential
PACE Programs
Utility EnergyEfficiency Programs
$0 $1,000 $2,000 $3,000 $4,000
$3,600
$40
Spending in 2009
PACE Status (2010)
Millions
Potential
PACE Programs 2010
PACE Programs 2011
Utility EnergyEfficiency Programs
$0 $1,000 $2,000 $3,000 $4,000
$3,600
$600
$300
Future Spending?
PACE Potential
Millions
Potential
Challenges & Solutions• Challenge: Fannie Mae objects• Solutions• Lawsuits• Legislation• Alternatives• Challenge: Participation v. Energy Savings
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
Lender Letter LL-2010-06May 5, 2010
TO: All Fannie Mae Single-Family Sellers and Servicers Property Assessed Clean Energy Loans
Issue: Fannie Mae ObjectsChallenges & Solutions
1. We don’t come second.2. This isn’t a public good.3. “We’re buried in a subprime mess. Nothing new,
please.”
Lender Letter LL-2010-06May 5, 2010
TO: All Fannie Mae Single-Family Sellers and Servicers Property Assessed Clean Energy Loans
Issue: Fannie Mae ObjectsChallenges & Solutions
Solution #1: Lawsuits• FHFA, Fannie, & Freddie sued by:• California Attorney General • Sierra Club• Sonoma County, CA• Town of Babylon, NY
Small victory: Aug. 31, 2011 ruling requires FHFA to start over with
formal rulemaking
Challenges & Solutions
• 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.
Solution #2: Legislation
Photo credit: Flickr user katieharbath
Challenges & Solutions
• 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
Solution #3: AlternativesChallenges & 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?
Challenges & Solutions
Solution #3: Alternatives• Subsidized home retrofits• E.g. weatherization • Drawbacks• Who pays for subsidy?
Challenges & Solutions
Solution #3: Alternatives• Loan loss reserves• Can insulate lender• Drawbacks• Who pays for reserve?
Challenges & Solutions
Solution #3: Alternatives• Loan insurance • Insulates lenders• Low cost• Drawbacks• Offered to FHFA, but rejected• No private market right now
Challenges & Solutions
Issue: Participation v. SavingsChallenges & Solutions
• Minimum expenditures, e.g. $3,000
$3,000
Minimum Standards?
Energy savings
Par?cipa?on
Challenges & Solutions
• Minimum expenditures, e.g. $3,000• Minimum energy savings, e.g. 10%
$3,000 10%
Minimum Standards?
Energy savings
Par?cipa?on
Challenges & Solutions
• Minimum expenditures, e.g. $3,000• Minimum energy savings, e.g. 10%• Efficiency threshold, e.g. EPA Yardstick
$3,000 10%EPA
Yardstick
Minimum Standards?
Energy savings
Par?cipa?on
Challenges & Solutions
• Minimum expenditures, e.g. $3,000• Minimum energy savings, e.g. 10%• Efficiency threshold, e.g. EPA Yardstick • Retrofit Mandate to a min. standard
$3,000 10%EPA
YardstickYards?ck mandate
Minimum Standards?
Energy savings
Par?cipa?on
Challenges & Solutions
John Farrellwww.energyselfreliantstates.org
[email protected] x120
Municipal Energy Financing: Lessons Learnedh6p://bit.ly/munienergyfinance
Thank you!Other Resources•PACENOW.org•This report: