Category: PACE

The Low-Down on Property Assessed Clean Energy (PACE) Financing in Virginia

Property Assessed Clean Energy financing, or PACE, is starting to get more and more attention around the Commonwealth and the nation. In fact, Governor McAuliffe and his administration recognized PACE as a viable means to create more jobs, save energy, and lower electricity bills in a recent press release. As it’s popularity increases, many are still unaware of just exactly what PACE is and who it can benefit.

PACE financing is a loan program to help bring low-cost, long-term capital to fund the rehabilitation of existing and new privately owned commercial buildings through energy efficiency, renewable energy, and water conservation projects. The loan is repaid annually through the property’s real estate tax bill.

Thirty-three states and Washington, D.C. have passed legislation at the state level to enable PACE financing; nineteen of those states have already started a PACE program. In Virginia, a commercial PACE, or C-PACE, enabling law was originally enacted in 2009 and amended in 2015. Virginia’s PACE law requires a locality to develop a PACE program, and private lenders make the loan and negotiate directly with the property owner on rates and terms. Currently, Arlington County is the only Virginia jurisdiction actively developing a PACE program; however, several over localities are exploring the development of their own programs.

Practically all privately-owned commercial buildings, regardless of size, are eligible for PACE financing, including office, retail, hotel, and industrial space. Eligible PACE projects must either reduce energy consumption or generate energy, and they must be permanently affixed to the property. Eligible improvements include: insulation, solar panels, lighting, roofing, and HVAC systems. In Virginia, commercial, nonprofit, and multifamily buildings (except condos and dwellings with less than five units) are eligible regardless of their age.

PACE offers an array of benefits for each key stakeholder: property owner, contractor, lender, locality.

Property owners:

100% financing: PACE covers 100% of all hard and soft project costs, eliminating the need for upfront cash investment.

Long-term loan: With terms up to 20+ years, PACE loans result in lower annual payments and immediate positive cash flow.

Transferable: PACE loans do not have to be paid off at the time of sale; they transfer to the new owner.

Non-accelerating loan

 

Contractors:

Increase sales volume and improve profit margin: By covering 100% of project costs and eliminating the requirement for out-of-pocket expense, PACE brings financing to more customers. Since PACE is based on equity in the property and not personal credit, it is easier for more customers to obtain financing.

Fund deeper energy retrofits: Long-term financing enables customers to take advantage of projects with longer paybacks, which leads to more comprehensive projects with greater effect on energy usage. PACE can also fund efficiency improvements that are not allowable uses of Weatherization Assistance Program funds (i.e. replacement windows).

Gain support and resources: PACE programs can be developed to offer an array of contractor services to help grow business and streamline financing. Services include training, call center support, customizable marketing materials, tools to pre-qualify customers, project estimation calculators, and web portals for financial analysis and deal-tracking.

Spur demand for retrofits and energy auditors: As the number of people taking advantage of PACE increases, PACE could spur a surge of private demand for well-trained retrofitters. Additionally, as the program grows, so will the demand for energy audits. Energy audits are used to track a building’s energy usage before and after PACE improvements are installed.

 

Lenders:

Meet client’s needs of implementing upgrades

Increase value of collateral: upgrades and improvements increases the value of the property

– Enhances property owner’s ability to pay their debt: raises net operating income (NOI) through low annual payments and decreased operating costs

 

Localities:

– Creates employment opportunities for contractors, trades, engineers, vendors, etc.

– Serves as a redevelopment tool for “tired” buildings with obsolescent and inefficient systems

– Improvements make buildings more marketable, leading to better tenant retention and increases property values

Increased property taxes  and construction fees yields more revenues for jurisdictions

Reduces locality’s carbon footprint, enabling it to become a green leader

Minimal municipal burden: a third party administrator carries the cost of starting and running the program

 

The difference between traditional bank financing and PACE financing:

Traditional Bank Financing PACE Financing
Purpose: HVAC and Lighting Purpose: HVAC and Lighting
Project Cost: $100,000 Project Cost: $100,000
Loan: $75,000

25% upfront cash investment required

Loan: $100,000

$0 upfront cash investment required

Interest Rate: 5% Interest Rate: 6.25%
Term: 5 years, fully amortizing Term: 15 years, fully amortizing
Monthly Payment: $1,415 Monthly Payment: $857
Annual Payment: $16,984 Annual Payment: $10,290

 

PACE financing is a lucrative tool that can benefit all parties involved. We look forward to seeing Arlington get their program up and running later this year and are excited to continue working with other localities as they explore the feasibility of developing their own PACE programs.

If you would like additional information about PACE, please contact VAEEC Program Coordinator Jessica Greene.

VAEEC Selected to Receive Portion of DOE’s MAPA Grant

Last week (February 20, 2017) VAEEC participated in the first Mid-Atlantic PACE Alliance (MAPA) kick-off meeting in northern Virginia. MAPA is the result of a U.S. Department of Energy grant to support the development, implementation, and utilization of Commercial Property Assessed Clean Energy (C-PACE) programs throughout Virginia, Maryland, and Washington, D.C. The Virginia Department of Mines, Minerals and Energy is leading this effort between private and public stakeholders to develop and promote best practices, which will make the development of PACE programs more effective and will accelerate the growth of C-PACE programs throughout the region.

Educating stakeholders and standardizing templates and models are two key focuses of the MAPA team. Partners will use grant money to educate primary stakeholders (localities, property owners, lenders and borrowers, and contractors) about PACE. The second focus is to develop streamlined, consistent practices that will propel the adoption of PACE across Virginia while supporting the expansion of existing programs in Maryland and Washington, D.C. This includes the creation of consistent, cost-effective practices for program administration, drafting ordinances, financial underwriting guidelines, measurement and verification requirements, contractor training, and overall support.    

This grant will enhance the work the VAEEC is already doing to further promote and advance PACE throughout the Commonwealth.

Click here to learn more about MAPA and here to read a copy of Governor McAuliffe’s press release about the grant.

First PACE Lunch + Learn

The Virginia Energy Efficiency Council is diligently working to build a coalition of support for Property Assessed Clean Energy financing, or PACE, and to provide guidance and resources to localities interested in developing PACE programs.  To assist with this effort, VAEEC has initiated a series of events across the Commonwealth suitably called “PACE Lunch + Learns”.  Each event is open to anyone interested in learning more about PACE; however, these events target commercial property owners, contractors, lenders, and local government officials.  Knowledgeable speakers from the field will provide attendees with information on PACE and answer PACE-related questions.  VAEEC is teaming up with different sponsors to host the events and provide a complimentary lunch to all in attendance.

On Monday, December 5, VAEEC and Williams Mullen kicked off the first Lunch + Learn for the Hampton Roads/Norfolk area with a diverse group of nearly 30 people in attendance. Speakers included Abby Johnson, Bill Nusbaum, and Rich Dooley.  Abby Johnson is the President and founder of Abacus Property Solutions, an independent real estate advisory firm.  Abacus provides PACE project development and consulting and works with capital partners to identify PACE opportunities and develop PACE programs.  Bill Nusbaum is an attorney with Williams Mullen, a full-service law firm, which is a key stakeholder in developing PACE financial underwriting guidelines with the Department of Mines, Minerals and Energy along with Abacus and VAEEC.  Rich Dooley is the Community Energy Coordinator with Arlington Initiative to Rethink Energy (AIRE) in Arlington County.  AIRE’s goal is to cut greenhouse gas emissions from County operations.  Arlington County is the first locality in the Commonwealth on track to develop a PACE program.

The presentation provided a wealth of knowledge for all in attendance as it covered many different aspects of PACE.  Here are my key take-aways:

  • PACE provides a win-win opportunity for property owners, contractors, localities, and lenders. Through PACE financing, commercial and multifamily property owners can receive 100% project funding for energy efficiency, renewable energy, and water conservation upgrades. The loan is paid back as a line item on the property tax bill, and in most cases, the utility savings from the funded projects cover the costs of the loan.  Additionally, as a senior lien status, PACE assessments stay with the property upon sale.
  • Contractors benefit from PACE through increased sales volume and improved profit margin. By helping customers reduce costs and improve the value of their property, customers are able to spend more on additional building improvements.
  • PACE spurs economic development within localities. Not only does PACE provides jobs, it improves building stock and increases property values, which produces more revenue for the jurisdiction.  PACE serves as a redevelopment tool for older buildings at little to no cost to the locality; third party providers carry the cost of starting and maintaining the program.  Furthermore, PACE helps decrease a locality’s carbon footprint.
  • Based on the types of questions posed by the audience, the advantages of PACE to lenders is perhaps the hardest to grasp. In order for a PACE program to be full-fledged and offer the most benefits to all parties involved, the existing mortgage holder must consent to allow PACE to take senior lien status. However, PACE is still beneficial to lenders because it increases the value of their collateral.  Moreover, PACE improves a property’s net operating income (through reduced utility bills), and the project is cash flow positive (the loan payment is typically less than the energy savings).  In fact, over 200 lenders nationwide have already consented to make their mortgage junior lien status because they recognize these benefits.
  • Arlington County is on track to become the first locality within the state to develop a PACE program. Other localities, such as Norfolk, the City of Fairfax, and Richmond have expressed interest in developing PACE programs.
  • To facilitate interest in and garner support for PACE, Arlington engaged with the real estate community and coordinated with the private sector and several County departments. By building a relationship with these groups, there was enough interest in PACE to begin developing a program.  Currently, Arlington is in the midst of finalizing a Program Administrator.  The program is on track to launch in early 2017.

Our next PACE Lunch + Learn is scheduled for Tuesday, January 31 in Ashland.  Stay tuned for a Lunch + Learn event in your area.

Recap and Recording: “PACE in Virginia” Webinar

Last week (September 26, 2016) I started my new position of Program Coordinator with Virginia Energy Efficiency Council, where a large portion of my job is dedicated to building coalitions of PACE (Property Assessed Clean Energy financing) supporters throughout the Commonwealth. Being relatively new to the world of PACE, I immediately immersed myself in PACE research. Therefore, imagine my excitement when I learned VAEEC was kicking off their webinar series with a “PACE in Virginia” webinar!

The webinar promised an overview of PACE financing, including benefits to contractors and property owners, case studies, and a breakdown of what PACE looks like in Virginia, presented by three speakers with amply knowledge and experience in the field. And it delivered.

I found the webinar to be incredibly beneficial. Elyssa Rothe’s (PACENation) overview reinforced the basics of PACE, which provided good background knowledge for the rest of the presentation. Abigail Johnson (Abacus Property Solutions) dove further into the benefits of PACE and provided two case studies as examples. Bill Greenleaf (Virginia Community Capital) ended the webinar with a summary of what PACE looks like in Virginia.

Here are my greatest take-aways from the webinar:

  • PACE is for energy efficiency and renewables and many different building types. can be used for projects that either reduce or generate energy, including energy efficiency upgrades and renewable energy. Furthermore, it is available for all kinds of commercial building types; multi-family, hotel, office, retail, agriculture, and industrial. Government owned buildings are the only exception.
  • PACE offers several advantages over traditional bank financing. It covers 100% of a project’s costs, while offering a competitive interest rate. Instead of the typical 5-7 year terms, PACE can be financed for up to 20 years, which lowers annual payments. Financing is repaid annually via the building’s property tax assessment. Additionally, assessments stay with the property and automatically transfer to a new owner.
  • In Virginia, local governments must past ordinances to establish PACE programs or contract to a third party. Commercial PACE, or C-PACE, was enhanced in 2015 and applies to commercial buildings with at least 5 units.

If you were unable to attend the webinar, I urge you watch our “PACE in Virginia” webinar recording. Even if you already have a good understanding of PACE, this webinar will serve as a great refresher as you listen to experts well entrenched in the field.

Please note that we also have a PACE page on our website with updates and resources.

With electricity and justice for all

By: Kelsey Galantich, VAEEC Intern 2016

Electricity is essential to remain connected in this day and age. There have even been acts at the international level to make electricity a human right. However, in an article recently released by The Atlantic, even in the United States affordable electricity can be hard to come by.

Most middle to upper class families spend 5% or less of their incomes on energy-related bills.[1] However, according to the article, the lower the income of the family, the higher percentage of income is spent on electricity. Data from the Department of Health and Human Services estimates that people below 50% of the poverty level consequently spend, on average, about 35% of their incomes on home energy costs in the U.S.1

For a better perspective, the map below, created by Inside Energy’s Jordan Wirfs-Brock, compares the percent of income spent on energy bills for homes below 50% of the poverty level within the continental US:

screen-shot-2016-09-29-at-8-34-53-pm

Below, is a closer look at the state of Virginia:[2]

screen-shot-2016-09-29-at-8-21-56-pm

As a solution, Virginia legislators have made efforts to move forward with the federally funded Property Assessed Clean Energy (PACE) financing program. This program allows businesses to finance solar energy and energy efficiency improvements at no upfront cost, and to then pay back the cost over time with the inevitable money saved in energy bills via their property tax bill. The program is slowly moving forward in some Virginia localities, such as VAEEC Council member, Arlington County. However, though available to homeowners in other states, its expansion to private homeowners is not yet a reality in Virginia.

According to the American Council for an Energy Efficient Economy, many state utility regulators require that utilities provide bill assistance programs that complement federal programs, such as the Weatherization Assistance Program (WAP) and the Low Income Home Energy Assistance Program (LIHEAP), both of which are conducted through the U.S. Department of Energy. Some regulations also require utilities with energy efficiency programs to specifically target low-income customers [3].  For example, in Virginia, Dominion Power offers bill pay assistance and free weatherization and energy-saving upgrades through its EnergyShare program, which targets customers facing financial hardships, including military veterans and disabled individuals [4]. The program also includes one-on-one sessions with program participants, and educational outreach at community events to help people make wiser energy decisions. Similarly, another VAEEC member, the Local Energy Alliance Program (LEAP) offers free in-home energy assessments by expert building screen-shot-2016-09-29-at-8-21-28-pmanalysts for Dominion customers, which are available to households with an income threshold of 60% of the state median income, households with elderly and disabled citizens and Veterans, and Dominion EnergyShare customers. These analysts provide a custom report recommending energy saving products, free installment of selected improvements, and post-installment visits to ensure improvements’ success [5]. Community Housing Partners yet another VAEEC member, located in Christiansburg, VA offers weatherization services through WAP, which involve a site-specific energy audit of the home, along with repairs and improvements, such as the installation of energy-saving measures. This service targets low-income families, in particular those with elderly residents, disabled individuals, and children [6].

Increased energy efficiency is essential to making electricity more affordable and accessible. These national and local initiatives have the potential to help millions of low-income Americans keep the lights on while also staying fed, offering hope for a more efficient, cleaner, and sustainable communities at reduced cost, no matter the income.

Does your utility, nonprofit or company offer programs or opportunities for families in need in Virginia to reduce the burden of their energy bills? Let us know by emailing info@vaeec.org and we’ll update this post!

 

[1] http://www.theatlantic.com/business/archive/2016/06/energy-poverty-low-income-households/486197/

[2] These maps are based on original analysis by independent firm, Accounting Insights, who shared their data with Inside Energy. The annual energy bills were determined by information regarding energy use, type, and price from the Energy Information Administration, and information on household size, tenure, type of fuel used from the U.S. Census Bureau. This information was compiled into a model that estimated the annual energy cost for each U.S. county. Inside Energy then divided the average annual energy bill by the income midpoint for households living under 50% of the federal poverty level to come up with the percent of income owed to energy bills.

[3] http://aceee.org/sites/default/files/publications/researchreports/u1602.pdf

[4] https://www.dom.com/residential/dominion-virginia-power/in-the-community/energyshare

[5] http://leap-va.org/saveaton/

[6] https://www.communityhousingpartners.org/312/weatherize.html

Seeking proposal for PACE experts to support local governments: Deadline 9/8

The Virginia Energy Efficiency Council is seeking proposals from subject matter experts in the Property Assessed Clean Energy (PACE) field to help us provide technical and legal services to local governments in Virginia who are considering the creation of PACE financing programs.

Download the RFP.

Important Dates:
8/25: Registration deadline; deadline to ask up to 5 questions
9/1: All submitted questions, with answers, will be sent to all registered applicants
9/8: Proposals Due

Guest Blog Post: PACE Financing Update for Virginia

Since our last post about PACE (Property Assessed Clean Energy) in Virginia, we continue to move the needle forward on PACE financing in our state. In early April, Virginia Community Capital released the final recommendations from our Oak Hill Fund grant.

Although we concluded that a statewide program administrator would be the ideal solution to ensure rapid advancement of PACE in Virginia, we also concluded that there is no known existing funding to support the creation of statewide program administrator. However, Abacus Property Solutions assisted the Virginia Department of Mines, Minerals and Energy (DMME) in responding to a Department of Energy State Energy Program (SEP) grant that, if awarded, would provide Virginia and partner states, Maryland and District of Columbia, with $500,000 in PACE funding across our region. This three-year grant would help seed and develop statewide PACE efforts including:

  1. Develop standardized, and low-cost program design and administrative structures throughout the region;
  2. Increase market awareness of PACE through coordinated outreach to and education of key stakeholder groups whose participation in PACE will accelerate its adoption and growth in the region.

iStock_000014433293SmallIf awarded, the DOE grant would address specifically administrative structure, owner eligibility, financial underwriting guidelines, energy audit and measurement & verification requirements, contractor training and support, capital provider support, and marketing messages and strategy. The VAEEC would receive a portion of this funding from this DOE/DMME grant to implement some of the work in the grant.

We feel that our response was strong due to our regional approach across three states and the problem that we are solving with a standardized model. DMME should know by late August or early September 2016 if we were awarded the grant, with funding provided by mid fall.

In the interim, the grant recommendations included the notion that VAEEC develop a comprehensive local government and energy contractor PACE education and outreach effort and offer technical assistance to local governments interested in PACE. An additional recommended task is to build grassroots efforts to compel localities to create PACE programs. The VAEEC is well positioned to build a grassroots campaign of energy service companies, clean energy advocates and property owners in local jurisdictions.

In late February, Arlington County issued a RFP to select a third party PACE program administrator. The creation of a PACE program in Arlington with a third party administrator creates another path forward to advance PACE in Virginia. Other localities can replicate the Arlington model, which calls for a third party to run their program and be paid from origination fees.RIC skyline night

Finally, in late March 2016, the Richmond City Council passed a resolution calling for the Chief Administrative Officer to submit a proposal to City Council by January 31, 2017, with recommendations for creating a PACE program. The city is now forming a PACE stakeholder group and will study the Arlington model as part of its work plan to develop recommendations for implementing a PACE program.

Guest Blogger: Abby Johnson, Abacus Property Solutions (VAEEC Member – Individual)

1 2