February 25, 2019
The American Council for an Energy Efficient Economy notes that upfront costs are a major barrier to pursuing energy efficiency projects, while solar PV installations and other renewable energy projects can face similar challenges.
This is where an innovative financing mechanism called Property-Assessed Clean Energy, or PACE, is a valuable tool. PACE is low-cost, long-term financing that is repaid as a property tax assessment for a specified period of time (usually 10 years at 5% interest).
The key benefit to PACE is that it allows property owners to invest in clean energy, and to earn an immediate positive cash flow. With PACE, projects are financed at 100%, because PACE often fills the gap between what the mortgage holder and other equity is able to fund.
Clean Energy Resource Teams (CERTs) website has an excellent overview of the process for a PACE project, and a description of how the money flows: cleanenergyresourceteams.org/pace.
Minnesota loves PACE
PACE has been wildly successful in Minnesota helping to deliver energy improvements to industrial buildings, commercial buildings, nonprofits, multi-family housing units and senior care facilities, as well as, farming operations. According to the Saint Paul Port Authority, which manages one of the state’s two PACE programs, there have been 188 PACE funded projects in Minnesota. PACE has financed more than $63 million of project costs, and the projects have delivered annual savings of nearly $5 million. Additionally, PACE projects have created 90 permanent jobs, and 665 construction jobs.
There are numerous examples of commercial PACE projects, including Minnesota’s largest residential solar energy project at the Liberty Apartments and Townhomes in Golden Valley, and a $20 million Rochester hotel renovation project that will reduce energy and water usage.
While PACE is used by property owners, it’s also an important tool for economic development agencies looking for funding for projects in their community. They can work with a PACE administrator like the Port Authority or Southwest Regional Development Commission to determine if their project is eligible for funding, and incorporate energy efficiency, renewable energy or electric vehicle improvements that they may not otherwise have been able to make work financially.
Modifications to commercial PACE would unleash new opportunities for clean energy
Currently, PACE can only be used for renovations to existing buildings. That could be changing this legislative session. Bills coming to both the Minnesota House and Senate would allow new commercial development to be eligible for PACE and would update the guidelines on how property value should be assessed. This smart change has support from both Republicans and the DFL and would help expand clean energy adoption across the state.