Late last week, the District of Columbia made a historic announcement of its first-ever financing of a property-assessed clean energy (PACE) commercial energy upgrade project.
The DC PACE Commercial program provided financing for a $340,000 investment in an affordable multifamily housing complex in southeast Washington, D.C. The project included a suite of energy efficiency and clean energy improvements, including lighting, water conservation, and installation of solar panels for a combined 15 percent reduction in energy use. The project is projected to generate about $40,000 per year in ongoing tax credits and avoided energy expenditures.
PACE allows investments in efficiency and renewables to be paid back through a special tax levied on the property. This avoids the classic “split incentives” problem, where building owners are hesitant to make capital investments out of pocket even though they have a good financial return, simply because they may not still own the building in five years. PACE attaches the debt to pay for the building improvements to the title of the property -- not the credit of the borrower -- thereby lowering risk for the owner even as it offers excellent security for lenders.
In D.C., where 75 percent of the city's emissions come from buildings, these kinds of efficiency improvements can make a big dent in greenhouse gases.
“We have set aggressive goals to reduce energy use and greenhouse gas emissions in the District,” said Mayor Vincent C. Gray. “The engagement of private building owners is critical if we hope to achieve these goals. The DC PACE program provides an important source of financing to help property owners improve their energy and environmental performance, and save money.”
And, as PACE gains traction across the country in the commercial sector, these innovative financing deals can be an enabling mechanism to helping the work get done.
“This project puts Washington, D.C. on the map as a national leader in clean energy finance. And it tangibly makes the connection between social equity and climate resilience by cutting energy bills and carbon emissions for low-income residents,” said Bracken Hendricks, a senior fellow at the Center for American Progress, and advisor to Urban Atlantic, the program manager for DC PACE Commercial.
Washington, D.C.’s breakthrough this week is also part of a larger trend. The Connecticut Clean Energy Finance and Investment Authority has already lined up 49 PACE projects that are slated to close this summer. Efforts as small as Edina Minnesota’s $48,000 financing of solar panels for a local auto dealership, and as large as San Francisco’s $1.6 million upgrade of a landmark waterfront building have made news.
PACE financings are being used for five new Main Street energy upgrades in Ann Arbor, Michigan and two hurricane retrofits in Florida. Although PACE legislation has been adopted in twenty-four states, it has taken some time for commercial projects to get up and running and see deals getting done. (And in the residential sector, the program has been blocked by lenders worried about risks to mortgages.)
Although PACE has had its challenges, last week’s announcement by the District of Columbia is an indication that these programs are attracting interest from businesses and government alike.
Adam James is a Research Assistant for Energy Policy at the Center for American Progress and the Executive Director of the Clean Energy Leadership Institute. You can email him at [email protected] and follow him on Twitter @adam_s_james.