Property Assessed Clean Energy (PACE)

Property assessed clean energy (PACE) programs are used by local governments to finance renewable energy and energy efficiency projects on residential, commercial and industrial properties. PACE programs allow property owners to avoid the high upfront cost of clean energy installations and retrofits by paying for energy improvements through an addition to their property taxes. Under these programs, in general, a local government designates an improvement district and issues a bond secured by real property within the district. This district may follow municipal boundaries, but only those property owners who opt in are subject to PACE financing. Low interest, long-term loans are available for energy saving measures, which property owners are able to pay back over a time period of up to 20 years while saving on their energy bills. If the property is sold, the debt transfers to the new owner. The PACE concept was first introduced in Berkeley, CA, where a pilot program was approved in September 2008.Since then, PACE financing has been specifically authorized through legislation in 22 states, while 2 states were able to implement PACE programs without additional legislation.

Many PACE programs are currently on hold due to issues raised by the Federal Housing Finance Agency (FHFA). State law must authorize the use of PACE financing by local governments, but the FHFA has challenged state laws that give PACE programs the senior lien on a property. As a result, most residential PACE programs are not being implemented. The FHFA’s statement on the topic, issued July 6, 2010, is available here. Following the statement, several lawsuits were filed by counties, municipalities, and environmental organizations, against the FHFA and its opposition of PACE. A bill (H.R. 5766) was also introduced in the 111th Congress that would have enabled lenders such as Fannie Mae and Freddie Mac to accept PACE financing programs, but did not make it out of the House Committee on Financial Services.