PACE. It's the Susan Boyle of greentech policy initiatives.
PACE, or property assessed clean energy, emerged in 2008 in Berkeley as a way to help homeowners and businesses finance energy efficiency retrofits. Under typical PACE programs, the owner gets a loan via a city- or state-organized bond program to add equipment and then pays it back through a supplemental assessment on property taxes.
Getting financing under a PACE program, ideally, is cheaper, quicker and easier than going to banks yourself. Additionally, owners don't have to worry about getting saddled with the full cost of the repairs if they sell: the subsequent owner continues the payments. This is especially important in commercial retrofits because owners might own the building for only a few years.
Cities reduce energy consumption, building owners improve their property, occupants and tenants enjoy a better living space, banks get to issue loans and contractors get to bid on jobs. Twenty-three states and several cities inked programs and Joe Biden, Steve Chu and President Obama bear-hugged the idea.
What could go wrong?
Quite a bit, it turns out. Solar installers have complained that the programs put too many restrictions on paying for solar panels with PACE. Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA), meanwhile, have complained that the energy savings from PACE remain difficult to assess and that PACE increases risk for mortgage holders. Because of the bureaucratic complaints, PACE programs have entered legal limbo.
So what can resolve the problems and get things moving again?
1. Eliminate the Loading Order. The loading order requires that the owner show that energy efficiency retrofits reduce power consumption by 10 percent to 20 percent in many cases before PACE can be used to pay for solar.
The requirement exists because retrofitters and policymakers fear that homeowners will skip over the cheap, but drab, repairs like new insulation in favor of getting solar panels. Those fears are probably overblown. Companies like SolarCity, Recurve, and GridPoint now offer both retrofit services and solar panels or solar equipment. The sales reps will push BOTH repairs.
Barry Cinnamon, CEO of Westinghouse Solar, also argues that retrofits are more expensive than solar in many cases. In some hot areas with new homes, energy efficiency retrofits can take 83 years to achieve payback. In a lot of areas, retrofits are a better deal. Either way, taking out the loading order requirement lets consumers pick the best solution.
It will also keep the solar industry from complaining. It's an open secret that the solar industry can moan a bit. At solar conferences, you hear complaints about falling prices, pesky banks, not-generous-enough solar subsidies, and so on. Some days, it sounds like lunch time at the rest home. By eliminating the requirement, PACE will gain allies and not endanger its goals.
2. Skip Residential PACE for Now. Fannie, Freddie and the FHFA have argued that PACE endangers the security interests of mortgage lenders, who are still mopping up after the mortgage debacle.
Fine. Some consumers are walking away from homes. But for the most part, commercial building owners aren't. A PACE assessment thus won't increase any risk.
Another benefit: the gains from commercial buildings are easier to measure. Facilities managers keep religious track of power and gas consumption. The data that would come from energy efficiency retrofits -- which is sorely lacking now -- would help build the argument for expanding PACE. Ultimately, the data could allow homeowners to sell their retrofits for carbon credits.
3. Limit the Types of Repairs. If cutting out homeowners is too politically risky, how about this tack? Limit the size of PACE loans -- to say, $15,000 for homes measuring 2,000 square feet or less -- and circumscribe the types of repairs that can be undertaken. For example, maybe only insulation, duct work, HVAC systems and windows are allowed. Any fears that homeowners and shady contractors will use the funds to replace the neon Hamm's sign in the den with an LED one go out the window. With positive experiences, the reins could be loosened.
4. Make PACE Debt Junior. Because PACE funds get paid back as tax assessments, the debt becomes senior to a mortgage. When states enact PACE programs, legislators can insert a provision making them junior. Cities can't take this action, as state law supersedes, but states can. Besides, since PACE debt gets paid over decades regardless of who owns the home, the amount of PACE debt in arrears in any situation should be small.
The PACE industry can also be a little more straightforward. PACE gets paid back as a tax assessment, but in reality, it is a loan. In most situations, tax assessments aren't voluntary. The next time your city asks for a sewage assessment, tell them, "No thanks, I will opt for an outhouse" and see what they say.
Good lawyers: that is the real driving force of the green industry.
5. Threaten Even More Stringent Financial Controls. Do banks really do anything? The alternative energy industry is currently hostage to an endemic inability to get funds. Months after complaining about economic cataclysm, many large institutions began reporting billions in profits and issuing multimillion dollar bonuses. I don't mean to sound like a conspiracy theorist, but banks are probably pressuring Fannie and Freddie on this issue. The White House should push back. Threaten that investment bankers will have to wear name tags just like tellers or make them give out toasters again. Hardball won't lose many votes.
6. Change the ITC. Under the federal energy incentives, homeowners and businesses can recover 30 percent of the cost of a solar system through tax credits. They can recover 30 percent of retrofits under the same law, but only up to $1,500. Making them equal, as they should be, would make it a lot easier for the efficiency industry to let go of the loading order. And consumers, of course, would love it.
7. Advertise. In the three weeks that San Francisco's PACE program was up and running, the city received 33 applications and rejected 13 for financial issues. Twenty were completed and one got approved, according to Rich Chien, who runs it.
One in three weeks. Surely some word of mouth could help.