C-PACE 101: Understanding the clean energy financing tool making big moves in Minnesota

March 26, 2024
As we continue to promote and advocate for innovation and resiliency in clean energy, one of CEEM’s key goals for 2024 is to promote the efficient implementation of funding and laws supporting renewable energy development. Providing cost-effective opportunities, like the C-PACE financing program, for businesses and communities to engage with the sector plays a crucial role in promoting sustainability.

What is PACE?

PACE, short for Property Assessed Clean Energy, is an innovative financial solution tailored for building owners seeking to enhance energy efficiency and incorporate renewable energy upgrades. This groundbreaking program addresses financial obstacles that often impede the implementation of such projects by eliminating upfront costs. In Minnesota, PACE programs are available only for commercial properties, known as Commercial PACE or C-PACE.

What is C-PACE?

The Commercial Property Assessed Clean Energy (C-PACE) program serves as a financing mechanism offering commercial real estate owners affordable, extended-term funding options for a wide spectrum of sustainability projects. These encompass energy-efficiency improvements, as well as installations related to solar, wind, and geothermal energy sources, water conservation measures, and seismic projects. This financing strategy supplements traditional real estate financing, including mortgage debt proceeds and capital, and helps deal with funding gaps between debt and equity.

History of C-PACE Financing

C-PACE originated in Berkeley, California in 2008, as a local financing tool and quickly became a crucial financing strategy nationwide. Presently, 38 states across the nation, including Washington D.C., have enacted statutes to establish and facilitate their individual C-PACE programs. C-PACE continues to expand nationwide in places such as Hawaii and New Mexico which currently have C-PACE programs under development after recent legislation.

Why does C-PACE Matter?

The C-PACE program gives commercial building owners a smart business tool to improve building energy performance using private financing and no upfront costs with new and renewable technologies. Incorporating renewable energy technologies is crucial to achieving sustainability goals, and leveraging this affordable and cost-effective tool helps reduce the barriers to accessing clean energy. The C-PACE program is a catalyst for widespread business development, clean energy job creation, and renewable energy innovation. CEEM supports policies that encourage clean energy job growth and the economic opportunities provided by clean, affordable, and reliable energy. This seamlessly aligns with the cost-effective financing tool, which cultivates better sustainable social responsibility.

wind turbines in minnesota

How C-PACE works & its economic benefits

A state-level policy classifying clean energy upgrades is implemented for the public benefit, and C-PACE is used as the tool to finance the upgrades. Property owners can make upgrades at no initial costs, and the long-term payments are made through a special tax assessment, which is payable twice a year as part of property taxes, making it more efficient to pay and manage. The program has to be approved by the state legislature and local governments as a voluntary form of financing clean energy efficiency in commercial buildings.

There are a wide variety of resources on the C-PACE program including the C-PACE toolkit provided by the US Department of Energy (USDOE). The toolkit is a 4 step collection of resources that can be used by states to navigate and understand how to utilize C-PACE. This toolkit allows for better granular understanding and access to valuable resources while advocating for public engagement in conversations and discussions tied to clean energy.

States with C-PACE programs have seen economic benefits and sustainability promoted through the financing mechanism. Some key milestones reached nationwide in 2023 include:

  • $6.9 billion in C-PACE investment nationally
  • 3,320 projects have been initiated
  • 86,500 in job years created
  • 55% of the investment in energy efficiency projects
  • 17% of the investment in renewable energy projects
  • 15% of the investment to mixed projects
  • And, 3% of the investment to resilience projects

How MinnPACE Works

MinnPACE was founded in 2010 through the state legislature approving statute sections 216C.435 and 216C.436. It is a division of the Saint Paul Port Authority, and the largest provider of PACE financing in the State of Minnesota. By 2023, Minnesota had deployed $291 million in C-PACE loans – demonstrating the 6th highest use of the program in the nation.

In 2019, Senator Eric Pratt (R – Prior Lake), (SF1779) and Representative Jamie Long (DFL – Minneapolis) (HF1360) played crucial roles as chief authors of the CEEM-supported bipartisan C-PACE legislation. Within months of the bill’s passage, PACE Loan Group, which manages one of the state’s two PACE programs, had already funded $11.4 million in new construction projects. The financing is stimulated by funds such as TrillionBTU Loan Program, local credit unions, and national funding sources. Five years on, this financing tool has secured its legacy as a critical tool for encouraging clean energy deployment and growing overall economic growth across Minnesota.

In 2023, C-PACE lenders actively engaged to include the addition of farmland as an eligible commercial property for permanent land and water improvements applicable to the C-PACE program through the bills, SF2958 / HF3018, carried by Senator Weber, R – Luverne and Representative Brand, DFL – St. Peter. This policy change was passed in the 2023 Energy & Environment Omnibus and helped to extend clean energy and energy efficiency practices in the agricultural sector to be more resilient and sustainable.

MinnPACE today

The federal passage of the Inflation Reduction Act in August of 2022 created new incentives through tax credits that made the transition and investment to clean energy more cost-effective. This has added an additional layer to the MinnPACE financing tool and increased access to a wider set of communities. In the 2024 Minnesota legislative session, CEEM has been actively engaging with C-PACE business members, Pace Loan Group (PLG), and the Saint Paul Port Authority (SPPA), as well as collaborating with other C-PACE financers, to bring the program in line with other states nationally.

The four proposed changes to 2024 C-PACE legislation are focused on:

  • Increasing the maximum financing term to 30 years to help effectively reflect the usefulness of investment equipment provided by the funding.
  • Eliminating the “cost-effectiveness” standard to remove constraints on overall project sustainability achievements and enable initiatives such as building electrification and decarbonization.
  • Adding building resiliency as an eligible financing measure to help building owners to have more structural resilience against natural disasters and reduce greenhouse emissions.
  • Raising the Loan-to-Value (LTV) limit for the improved property to 30%, aligning Minnesota with the standards observed in other states.

The 2024 C-PACE Amendment Bill is authored by Senator Port (DFL – Burnsville) (SF3535) and Representative Carroll (DFL – Plymouth) (HF3946) and updates Minnesota’s C-PACE program to have a more inclusive approach to commercial sectors that can access funding. If the 2024 C-PACE amendment bill passes in Minnesota, it will bring the state in line with national trends in C-PACE financing, making it a more advantageous location to improve commercial building sustainability through attractive financing and increased flexibility. CEEM continues working with C-PACE lenders to ensure these important changes become law.

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Mayande Headshot

This is a guest blog written by Mayande Mamba, policy intern at CEEM for the 2024 Minnesota Legislative Session. Mayande is responsible for helping track important bills that aid in research and policy analysis. She is currently a student in her Sophomore year at Macalester College majoring in Economic and Math. Read more about Mayande.

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