Property-assessed clean energy, or PACE, financing has had a rough ride over the past few years, but it’s poised for a comeback. On the home front, we’ve got federal regulators considering ways to unblock a financing model that could spur billions of dollars in residential energy retrofits. And on the commercial side, we’ve got some showcase projects that could unlock a market even bigger in scope.

That’s not bad, considering the death many analysts were predicting for the PACE model in 2010. That’s when the Federal Housing Finance Agency told mortgage giants Fannie Mae and Freddie Mac that they couldn't underwrite mortgages for homes that sought to pay back home energy efficiency upgrades, solar panels and other projects through property taxes.

Residential PACE programs underway in 27 states were cut short. Sure, you could still fund your home improvement project through PACE programs. But you couldn’t pass the tax burden on to someone else when you sold or refinanced, which was PACE’s big selling point.

But now the FHFA is being court-ordered to reconsider whether its rules on PACE financing should be “maintained, changed or eliminated” (PDF). The agency has opened the matter for public comment through March 26, 2012. PACE backers from the industry and the nonprofit world are promising to make their views known. On the other hand, FHFA has appealed the case to U.S. District Court, where it may win a more favorable ruling.

In the meantime, FHFA’s ruling doesn’t apply to commercial mortgages. That’s allowed cities and counties to form special districts that promise building owners the key benefit of PACE: tying investments to the property, not the owner. That way, it costs them nothing. In fact, if the energy savings outpace the quarterly tax payments, it’s actually making them money.

Last fall, one of the largest such projects launched in Miami-Dade County and Sacramento, Calif., with the promise of drawing in $650 million in efficiency investments over the next few years.

Ygrene Energy Fund, a Sonoma, Calif.-based pioneer in residential PACE programs, has taken a lead role in the project, which seeks to convert PACE-backed efficiency projects into bonds for sale to institutional investors like pension funds.

Here’s how it works: First, Ygrene markets the program to building owners within the newly created tax districts, asking them to commit to an off-balance-sheet, no-upfront-cost investment in their building. A deep-pocketed contractor (in this case, Lockheed Martin) takes on the biggest efficiency measures. To back the promised energy savings on their way to being packaged as a financial product, Energi Insurance Services underwrites an insurance policy backed by Hanover Re. Barclays Capital offers low-interest, short-term project finance loans to do the work, and backs those loans by bundling them into long-term bonds.

It’s a complicated structure, and we can expect months, if not years, to pass before Barclay’s PACE-backed bonds start appearing on the market. But there’s plenty of reason to believe the capital behind them will grow, Ygrene Chairman Dennis Hunter told me in an interview last week.

For example, the Miami-Sacramento projects’ $650 million target is based on participation of only 3.5 percent of all properties in the special districts, Hunter said. If only 10 percent join in, that number could rise into the billions of dollars. Ygrene has about $30 million in applications already, though the project hasn’t officially launched yet, he said. After all, green building retrofits are known to increase property values.

Meanwhile, Ygrene and Sacramento have pledged to spend $100 million on their PACE program to back the White House’s Better Buildings Challenge, which is asking the private sector to pony up $4 billion in efficiency projects over the next two years. The Clinton Foundation has estimated the potential for commercial energy efficiency projects at $88 billion to $180 billion nationwide, providing plenty of room for growth in a market that is largely self-financed today.

Of course, there are other financing methods being applied to the opportunity as well. Startups like Serious Energy, Transcend Equity and Metrus Energy are putting together new financing models that allow them to pay for and own building improvements for the value of the energy savings they create. That’s a bit like the energy services contracts that giants like Honeywell, Johnson Control, Siemens and Schneider Electric provide for the government and institutional buildings sector.

On the residential side, California regulators are considering “on-bill payment”  plans to boost investment at the residential level. North American utilities spend about $6 billion per year on energy efficiency programs, but could unlock additional investments by letting people fold their monthly interest payments into a utility bill that’s also going down as the building gets more efficient.

The key to most of these programs is the promise that they will be virtually free to the building owners -- which means that the financing parties are taking on a big risk. But then, efficiency investments are some of the fastest and lowest-cost green investments around, which could give reassurance to whatever market ends up developing for them.