Texas is not the first state to adopt commercial property-assessed clean energy financing, but it wants to be the biggest -- and to get there quickly.
Keeping PACE in Texas, a nonprofit coalition that was formed to develop PACE programs for the state last year, has just released a draft of its “PACE in a Box” toolkit, which will be finalized before summer.
PACE allows investments in energy-efficiency retrofits and distributed renewable generation to be paid back through a tax that is tied to the property, which lowers the risk for both lenders and owners and can potentially open up a far larger swath of the energy efficiency and clean energy markets. Commercial PACE-financed projects climbed to nearly $60 million in 2013 with another $215 million in the pipeline, according to PACENow, a nonprofit that promotes PACE programs.
In most states, commercial PACE has been a regional affair, with different municipalities each adopting slightly different rules. (Connecticut, which has implemented a successful statewide PACE program, is the most notable exception.) There are various types of PACE programs popping up from coast to coast, and many are building on the lessons learned by early movers, particularly Connecticut and California.
In terms of program structure, Texas wants the best of both worlds: a program that can be tailored by municipalities and counties but with the right protocols in place for stakeholders to roll out the programs quickly and effectively with a minimal role for local government. The toolkit is intended to be “a uniform, user-friendly, sustainable and scalable turnkey program to assist local governments in establishing and implementing PACE programs,” according to Keeping PACE in Texas.
“We have had this incredible opportunity to...take a look at PACE and take a look at Texas and ask, ‘How can we reinvent the wheel? What would it look like?’” said Charlene Heydinger, executive director of Keep PACE in Texas.
Texas consumes more electricity than any other state in the U.S., and heavy industry accounts for half of the energy used in the state, compared to the 32 percent share it constitutes for the U.S. as a whole. Water availability is also a problem in Texas, and PACE could be used to address both water and energy efficiency with a single financing mechanism. Some studies have found that water efficiency programs can save as much or more energy than pure-play energy-efficiency efforts.
The PACE in a Box toolkit uses energy-efficiency protocols developed by the Environmental Defense Fund’s Investor Confidence Project. The ICP isn’t looking to build new standards for energy efficiency, since so many already exist, but rather to create a system of protocols for how buildings are retrofitted so that the process is scalable, measurable and verifiable.
"Not only will ICP help create consistency in PACE programs across Texas, it will also align Texas PACE with a growing number of private investors interested in investing in the state," Matt Golden, senior energy finance consultant with EDF, said in a statement. ICP also works with Connecticut’s Green Bank and the LA Better Buildings Challenge.
“We are glad to have access to ICP’s energy-efficiency protocols to help ensure consistency in energy-efficiency monitoring and valuation so that property owners and lenders have confidence in the savings projected in their PACE in a Box financing opportunities,” said Heydinger. “We’re trying to make PACE boring. Once it becomes a regular financial product, we’ve succeeded.” Many local lenders are already on board, but the program is still looking to attract large lenders.
Another unique aspect of the approach being developed in Texas is that the program administrator will not be the only lender. “We had to cut the cord between the administration and funding of the programs,” said Heydinger. “We’ve reduced the [role] of government in the program and what’s expected of it.”
The downsized role for the government, which will still put the assessment on the property, is critical for buy-in in Texas, especially in rural counties. Also, it is hoped that property owners will eventually be able to select from among a number of lenders, as long as they meet certain criteria. The PACE in a Box toolkit assumes that there will never be a dime of state money, and probably no local money, that goes toward administering these programs, so all of the cost is built into the financing and has been minimized as much as possible by standardizing the process.
Since this is Texas, the effort is as much about getting agriculture and large industry across more than 200 counties on board as it is about supporting commercial property owners in large municipalities such as Dallas, Houston and Austin.
There are twenty-four regional government councils in the state, and the plan is for each council to have one PACE program administrator that the towns and cities can turn to if they choose to activate PACE in their district. Most of Texas’s petrochemical industry, for example, is represented on a single regional council.
Some of the larger cities are already ready to roll, said Heydinger, and will likely start putting in applications for financing as soon as the program is rolled out in late May or early June. The project opportunities are similar to those in other areas, including energy-efficiency retrofits and clean energy investment, but water efficiency could also prove to be a big winner in drought-ridden Texas.
Keeping PACE in Texas is accepting feedback until May 15, and a final version of PACE in a Box is scheduled for release on May 30. “If we can get three or four councils to set it up, we will spread this very quickly,” said Heydinger. “We think this will certainly resonate in Texas, and maybe nationwide."