December 1, 2009
PACE ENERGY PROGRAM
By: Kevin E. McCarthy, Principal Analyst
You asked for information on the property-assessed clean energy (PACE) programs. OLR report 2009-R-0031 describes a PACE program in Berkeley, California, the first city in the country to implement such a program.
Much of the information in this report is taken from www.dsireusa.org/incentives/index.cfm?EE=1&RE=1&SPV=0&ST=0&searchtype=PTFAuth&sh=1, a Department of Energy website that describes the programs and includes links to the state enabling legislation.
PACE ENERGY PROGRAM
At least 16 states have adopted legislation allowing local governments (municipalities or counties) to implement PACE programs. The states are California (the first to do so), Colorado, Illinois, Louisiana, Maryland, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Texas, Vermont, Virginia, and Wisconsin. In most cases, the enabling legislation was adopted in 2009. Among the jurisdictions that have implemented PACE programs to date are the city of Berkeley and Sonoma County in California, Boulder County, Colorado, and the town of Babylon, New York.
The enabling legislation is broadly similar across these states. In most cases, it allows the local government to establish a special taxing district to finance energy efficiency and renewable energy projects at homes and businesses in its jurisdiction. (In New Mexico and Ohio, the legislation does not cover energy efficiency improvements; California also allows districts to finance water efficiency projects.) In most cases, voter approval is required to establish a district.
The program effectively allows property owners in the districts to borrow money to pay for energy efficiency and renewable energy improvements. The program is typically funded by bonds. In most cases, the amount borrowed is repaid via a special assessment on the property over a long period (typically 20 years). The assessments, interest and any penalties are a lien against the property until the loan is repaid. Except in Oregon, the loan repayment has the same priority as property tax payments.
The firm Barclays Capital has prepared an extensive analysis of the financial issues surrounding PACE programs, which is available at http://pacenow.org/documents/5a.%20Barclays%20Memo.pdf.
The Colorado enabling legislation establishes a state Clean Energy Development Authority to help local governments create Clean Energy Finance Districts. It also requires the state treasurer to approve the local government's proposed financing measures.
Maryland's legislation prohibits commercial renewable energy projects larger than 100 kilowatts from participating in local clean energy loan programs. It also specifies that local eligibility requirements for property owners must address the owner's ability to repay a loan through a process similar to mortgage loan approval.
New Mexico passed two PACE bills in 2009. S.B. 647 allows counties and municipalities to create districts to promote a variety of forms of renewable energy and H.B. 572 allows counties to establish solar energy improvement special assessment districts (neither act addresses energy efficiency). H.B. 572 precludes counties from imposing any energy efficiency requirements, such as energy audits, as a condition for receiving financing for solar energy systems.
North Carolina allows local governments that adopt PACE programs to finance them by revenue bonds, general obligation bonds, or general revenues.
Oregon's law permits the loan to be repaid on the property owner's gas or electric bill. If the loan is repaid on the owner's property tax, it is subordinate to the mortgage.
In Vermont, Efficiency Vermont, the state's energy efficiency utility, will determine which energy efficiency measures will be eligible for the program. To participate in the program, property owners must conduct an energy audit to quantify project costs, energy savings, and carbon impacts.