U.S. Department of Energy Energy Efficiency and Renewable Energy

Commercial Property-Assessed Clean Energy Financing

The property-assessed clean energy (PACE) model is a new, innovative mechanism for financing energy efficiency and renewable energy improvements on private property—commercial or residential. PACE programs allow local governments, when authorized by state law, to fund energy improvements on commercial and residential properties.

PACE financing for clean energy projects is generally based on an existing structure known as a “land-secured financing district,” often referred to as an assessment district, a local improvement district, or other similar phrase. In a typical assessment district, the local government issues bonds to fund projects with a public purpose such as streetlights, sewer systems, or underground utility lines. The recent extension of this financing model to energy efficiency and renewable energy allows a property owner to implement improvements without a large up-front cash payment.

The property owners that voluntarily choose to participate in a PACE program repay their improvement costs over a set time period—typically 10 to 20 years—through property assessments, which are secured by the property itself and paid as an addition to the owners’ property tax bills. Nonpayment generally results in the same set of repercussions as the failure to pay any other portion of a property tax bill.

A PACE assessment is a debt of property, meaning the debt is tied to the property as opposed to the property owner(s), so the repayment obligation transfers with property ownership. This eliminates a key disincentive to investing in energy improvements whereby property owners are hesitant to make property improvements if they think they may not stay in the property long enough for the resulting savings to cover the upfront costs.

Residential PACE programs have recently received considerable attention and regulatory scrutiny. Recent Federal Housing Finance Agency guidance letters have caused many residential PACE programs to suspend operations, but they do not directly affect commercial PACE programs.

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