PACE financing

PACE financing (property assessed clean energy financing) is a means used in the United States of America of financing energy efficiency upgrades, disaster resiliency improvements, water conservation measures, or renewable energy installations in existing or new construction of residential, commercial, and industrial property owners. Depending on state legislation, PACE financing can be used to finance water efficiency products, seismic retrofits, resiliency, and other measures with social benefits.

The business model of the residential PACE ("R-PACE") program has been criticized. Private companies get a lien against a residential house, and prioritized payback. In addition, private contractors solicit homeowners to sign PACE contracts. Commercial PACE ("C-PACE") is widely accepted and enabled in most states, while R-PACE remains controversial and unavailable in most states.

Examples of energy efficiency and renewable energy upgrades range from adding more attic insulation to installing rooftop solar panels for residential projects and chillers, boilers, LED lighting and roofing for commercial projects. In areas with PACE legislation in place, governments offer a specific bond to investors or in the case of the open-market model, private capital providers purchase a tax lien from taxing authority and provide financing to the building owners to put towards an energy retrofit. The financings are repaid over the selected term (over the course of somewhere between 5 and 35 years) via an annual assessment on their property tax bill. PACE bonds can be issued by municipal financing districts, state agencies or finance companies and the proceeds can be used to retrofit both commercial and residential properties. One of the most notable characteristics of PACE programs is that it is not a loan, but rather a property tax special assessment and financing is attached to the property rather than an individual.^[1][2][3][4] A PACE financing runs with the land is therefore said to be nonrecourse to the property owner.^[5]

PACE can also be used to finance third-party owned systems financed through leases and power purchase agreements (PPAs). In this structure, the PACE property tax assessment is used to collect a lease payment of services fee. The primary benefit of this approach is that the financing does not rely upon property owner credit and the project costs may be lower due to the provider retaining the tax incentives and passing the benefit on to the property owner as a lower lease or services payment.

PACE programs help cities reach climate goals and property owners pay for the upfront costs of green initiatives, such as solar panels, which the property owner then pays back by increasing property taxes by a set rate for an agreed-upon term ranging from 5–35 years. This allows property owners to begin saving on energy costs while they are paying for their solar panels. This usually means that property owners have net gains even with increased property tax.