This article written by JP McNeill, CEO of Renovate America, and Mahesh Shah, CEO of FIGTREE Energy Financing.
More and more municipalities are embracing Property Assessed Clean Energy (PACE) financing programs as a valuable service they can offer to residents at no cost to the public coffers.
PACE makes it possible for property owners to finance certain energy-efficient upgrades through their property taxes and to pay for these improvements slowly over 5 to 20 years, depending on the cost and type of project. Because the financing mechanism is tied to a property owner’s assessments, the interest paid is tax deductible. And the upgrades often lower utility bills so significantly that the there is no net cost to the property owner on an annual basis.
The road to getting PACE off the ground has been challenging at times. In its early stages, a handful of municipalities launched self-funded PACE efforts around the country. Since that time, private financing companies have gotten into the mix. Municipalities benefit from partnering with private financing companies because it allows them to offer PACE financing to residents without increasing strain on local government budgets.
A growing number of private companies are implementing some of the first privately-funded PACE programs on a significant scale. The companies are working with cities and counties to develop programs that are tailored for each municipal structure and property owners. While the core service provided by each of these companies may appear to be similar, each has a different approach that may make their business model more or less beneficial to different property owners. Additionally, the interest rates offered by these companies will vary over time, no different than identifying who provides the lowest interest rates on mortgages, auto loans, or any other loan. For example, one day Wells Fargo may offer the best price, and the next day Bank of America or a local community bank might be the best option.
Municipalities that choose to partner with private financing companies for their PACE programs have two choices: establish a sole-source contract with one financing company, or establish an open market that allows as many companies as are interested to offer PACE financing services in their community.
Some municipalities may be inclined to the sole-source option because the local government is nominally involved in providing PACE financing (i.e., by enabling payments to run through the property tax mechanism). However, property owners will reap significantly more benefits in municipalities with open markets.
Municipal governments rarely insert themselves into the process of determining which private companies are allowed to offer services within their communities; they allow the supply and demand of the marketplace determine which companies offer the best services to meet the needs of their residents. This same principle should apply to PACE financing as well.
An open PACE marketplace ensures that PACE program benefits and services will be robust and lasting. Competition is good for business. It improves the product, program, and experience for residents by encouraging companies to provide what they believe to be the best possible product, including quality customer service.
For example, one company might offer a 24-hour staffed hotline to answer questions and help manage the financing application process, while a different company might open a storefront office in each community to walk folks through the process in-person. Each company brings an advantage to different types of customers. Municipalities that adopt an open PACE marketplace make it possible for residents to choose the company that best meets each of their needs.
Many cities and counties in California are recognizing that they don’t have to make an exclusive choice because they can, in fact, offer as many PACE programs as they’d like. They are still taking the time to ensure programs are appropriately vetted and that they meet their requirements. But their risk assessment process is now less arduous, because providing an open marketplace is more straightforward than comparing the pros and cons of individual programs, especially since a winning solution can change based on the consumer need.
Cities offering an open PACE marketplace include; Adelanto, Bakersfield, Commerce, Dublin, Elk Grove, Fresno, Indian Wells, Kerman, Kingsburg, Malibu, Oceanside, Palm Springs, Redlands, San Diego, San Marcos, Sanger, Santee, South San Francisco, Vista, and Yucaipa. Many counties are also pursuing this option, such as the counties of Alameda, Fresno, Kern, Monterey, San Bernardino and San Diego.
These cities and counties will realize the most success from their PACE programs by providing an open marketplace to program providers: property owners will be more effectively educated, more contractors will be trained, programs will be incentivized to improve over time, more projects will be financed, more jobs will be created, more energy will be saved, more carbon emissions will be reduced, and their community will share in the local economic benefits that effect their everyday lives.
JP McNeill is CEO of Renovate America, which offers PACE financing through the Home Energy Retrofit Opportunity (HERO) Program. To date, HERO has approved $172 million in home improvements, representing energy efficiency improvements to over 2500 properties.
Mahesh Shah, CPA is CEO of FIGTREE Energy Financing, which offers PACE financing to commercial property owners in 30 cities and counties in California. FIGTREE finances projects from $5,000 to millions of dollars. Figtree is the first company in the US to issue a multi-jurisdictional PACE bond to finance commercial energy upgrades.
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