Assemble Eligible Project Measures for Property-Assessed Clean Energy Financing Program
During the sixth step in the process to launch a commercial property-assessed clean energy (PACE) financing program, the local government (grantee) draws up a list of project measures eligible for PACE financing.
Two factors influence the types of measures eligible for financing under PACE. The first one is that the enabling legislation allowing the PACE financing mechanism to access governmental powers (i.e., add a special assessment to property taxes) comes with a requirement. The requirement is that projects funded by PACE must serve a valid public purpose (e.g., greenhouse gas reductions, energy security, etc.).
The second factor is that in the U.S. Department of Energy's (DOE’s) Guidelines for Pilot PACE Financing Programs—which mainly applies to residential PACE programs—DOE states, “…PACE financing should generally be limited to cost-effective measures to protect both participants and mortgage-holders until PACE program impacts become more widely understood. The financed package of energy improvements should be designed to pay for itself over the life of the assessment.”
DOE further recommends in those guidelines that the metric for judging a project’s ability to pay for itself should be a Savings-to-Investment Ratio (SIR) greater than one. DOE defines SIR in its Guidelines for Pilot PACE Financing as follows: SIR = [Estimated savings over the life of the assessment, discounted back to present value using an appropriate discount rate] divided by [Amount financed through PACE assessment]. Savings are defined as the positive impacts of the energy improvements on participant cash flow. Savings can include reduced utility bills as well as any payments for renewable energy credits or other quantifiable environmental and health benefits that can be monetized. Savings should be calculated on an annual basis with an escalator for energy prices based either on the Energy Information Agency U.S. forecast or a substantiated local energy price escalator.
In plain language, that means residential projects financed by PACE should save more money over their expected lifetimes than they cost to implement. Although the DOE guidelines seem to mainly target residential PACE programs, they do not specifically exclude commercial programs, so the cost-effectiveness recommendation could apply to commercial, as well.
Those two factors, therefore, strongly suggest that the eligible measures should be restricted to those that have a solid track record and, where possible, independent verification of their ability to save energy. To keep the process straightforward and make application approval/rejection defensible at program launch, a commercial PACE program may need to be more conservative initially about the measures eligible for financing (i.e., how directly they contribute to energy savings) and the proof of savings required.
The types of eligible measures can be expanded over time as the program administrator develops more knowledge and gains experience in evaluating projects and their actual associated savings. One proof of potential savings, for example, is that an eligible measure is already included in a utility’s incentive program (see Leverage Existing Utility Rebate and Incentive Programs for more information).
It can be challenging for a grantee trying to launch a new PACE program to develop a comprehensive list of eligible measures that covers all types of properties, improvements, and the aforementioned requirements. Therefore, a program may decide to draw up an official list of eligible measures, and then allow applicants to submit measures not on that list for consideration on a case-by-case basis. In doing so, the program must consider how it will cover any additional time and cost involved in reviewing measures not already on the official list (see Project Reviews).