Property assessed clean energy financing programs were dealt a near fatal blow last year when the Federal Housing Finance Agency (FHFA), which runs Fannie Mae and Freddie Mac, ruled July 2010 that PACE programs were not acceptable as they were.
However, PACE, an alternative means for funding solar, renewables and energy efficiency projects, continues to generate interest.
Last week, the Vermont towns of Albany, Cornwall, East Montpelier, Marlboro, Thetford, and Waitsfield decided to create town-wide PACE programs. Also, last week, supporters of the funding mechanism held a national conference in Palm Desert, Calif., at the University of California at Riverside’s Palm Desert Campus.
At the conference, they discussed the fate of PACE and how to move forward. Already some communities, like Palm Desert, are suing FHFA to allow them to resume the program.
The Vermont towns join the towns of Burlington, Halifax, Newport town, Putney and Westminster—all of which have voted to enact PACE programs since 2009.
“I think it’s great, especially because nationally the PACE movement has had such a setback. People in Vermont want to see how they can make this work,” said Peter Adamczyk of the nonprofit Vermont Energy Investment Corp. “Now there’s about 13 or 14 towns in the state participating. It’s about 20 percent of the state’s population.
“It’s large enough to allow us to show there’s a demand, and to start accumulating the data about the energy savings,” he said. “We want to prove that.”
PACE financing programs allow homeowners access to funding for renewable energy and energy-efficiency projects through property tax assessments rather than loans. PACE programs, known as Clean Energy Finance Districts, allow towns and municipalities to create a financing option for homeowners that want to install solar, other forms of renewable energy and energy-efficient retrofits based on a property tax assessment.
Under PACE, a town can set aside a certain area, or the whole town, to provide funds for homeowners to convert to renewable energy or replace inefficient equipment. Participants then repay the municipality over a period of up to 20 years. PACE also only affects the property tax of those individuals that opt to use PACE financing.
However, the FHFA’s ruling stated that basically any PACE property owner could be told that because of the PACE financing, the entire mortgage could be made due immediately, according to Adamczyk. That made many communities drop their bid to enact PACE financing. And none of the interested municipalities in Vermont have actually enacted a PACE program.
“The pause that happened across Vermont happened across the country,” he said.
But new state legislation in Vermont could clean up the issue.
“Legislation introduced in Vermont cleans up [the state’s] PACE legislation,” Amdczyk said. Among other things, it would make the PACE assessment junior—or secondary—to the primary mortgage.
The legislation would create a mandatory reserve account to which PACE participants must contribute 2 percent of their project’s cost, creating a reserve pool should they default.
The reserve pool would also leverage $2 million from the state’s carbon offset program. The $2 million will fund an amount equal to 5 percent of each assessment.
“So for a $10,000 assessment, $500 would be put in a state-managed reserve fund. I believe that those two would allow [the state] to offer PACE at an affordable interest rate,” he said. The legislation, he said, has broad bipartisan support and is likely to pass.
When the reserve pool gets large enough, the state or PACE districts will look into issuing bonds to support the program, according to Adamczyk.
“Bonds are the way to go,” he said. “Once numbers go up to above $20 million [in reserves], then we could do bonding.”
Image courtesy of Renewable Energy Vermont.