It’s no secret that Texans don’t like the government telling them what to do.
So when the state legislature passed The Property-Assessed Clean Energy (PACE) Act on June 14, the group that helped pass the legislation knew it would need to get creative to effectively launch PACE without constraining local governments with various rules for their PACE programs.
The nonprofit business association Keeping PACE in Texas will spend the next year assembling “PACE in a Box” for the state of Texas. It will offer some of the streamlined advantages of state-run programs like the one in Connecticut, such as standards for program underwriting. But it will also take advantage of the various ways PACE has been implemented in cities and counties across the country, whether programs are run directly by the governments or by a third-party administrator.
“We want a workable, voluntary, sustainable, marketplace solution,” said Charlene Heydinger, executive director of Keep PACE in Texas. “We want to take advantage of the best practices that are already out there, and then 'Tex-ify' them.”
Texas has about 1,400 municipalities. The PACE programs will likely be successful in some of the big cities, but the real goal of PACE in a Box is to get it out to the 200-plus counties where much of the state's industrial and agricultural sector is located.
The legislation does not specify what will qualify for a PACE loan, only that it is a permanent improvement for a privately owned commercial or industrial facility that decreases water or energy consumption or demand.
The open-ended language is empowering -- but also potentially dangerous if not executed correctly. If PACE in a Box doesn’t offer enough guidance, the loan programs could be so disparate that they might not scale as quickly as some stakeholders would like, or worse, they might not be adopted at all by the industrial sectors that the group hopes to target.
Texas consumes more electricity than any other state in the U.S., and heavy industry accounts for half of the energy used in the Lone Star State, compared to a 32 percent share for the U.S. as a whole.
The state, which has its own electrical grid, is plagued by low margins for electricity reserves and water shortages. Governor Rick Perry addressed the latter this summer by signing various water conservation bills into law. These could get a boost from the PACE legislation, which in turn could unlock funding for water conservation upgrades, especially in agricultural regions.
One model that Keep PACE in Texas is exploring is building programs that would cross various regional councils, such as where most of the industrial processing is located, to build enough scale to attract lenders.
For lenders that are looking for at least a half-billion dollars in PACE deals, Heydinger doesn’t think that scale will be a problem. She noted that replacing a boiler at just one refinery in 2011 was an $80 million project. “If we can reach the industrial sector, it will be a scale no one has ever seen,” she said. “ And if we can get them in one PACE district -- holy cow!”
No one has done a full study of the potential market size for PACE programs in Texas, although Keep PACE in Texas is interested in having that data available as it educates local governments on PACE over the next year.
For now, Keeping PACE in Texas is focused on building a clear yet flexible program in a box that will appeal to stakeholders, from local governments to contractors to lenders to industry and real estate executives.
Many of the stakeholders are already at the table, but the details of program design and technical and underwriting standards still need to be hashed out. PACE in a Box is expected to be designed within six months and implemented in 2014.