A NEW APPROACH TO FUNDING ENERGY EFFICIENCY
PACE – PROPERTY ASSESSED CLEAN ENERGY
That’s exactly what it is. A financial tool whereby you can finance any energy improvements by accepting a ‘special property tax assessment’ to your commercial property and spread the cost out over 10 to 20 years or more. The mission of the PACE program is to facilitate adoption of renewable energy and energy efficiency improvements by overcoming two major barriers to entry: the up-front capital and the payback period. PACE programs allow property owners to voluntarily borrow money from local governments to pay for such upgrades without negatively impacting the credit of either the borrower, or that of the participating jurisdiction. The payback period needed to make renewable energy and energy efficiency upgrades economically attractive have often been outside the reach of traditional bank financing. The program is designed to work like a “performance contract,· so the energy savings from your improvements will be greater than the ‘special assessment’ cost, thus having a net gain on the bottom line.
Owners of commercial and industrial property in the U.S. spend over $202 billion each year on energy for their operations – yet industry studies indicate that 30 percent of that cost is outright wasted every year due to inefficiency and outdated energy equipment. If your energy audit shows opportunity for a 15 – 30+ percent improvement, you can finance the upgrades out of the savings.
Virtually any business owner can participate in PACE. If you own commercial, industrial or multi-family property (five units and up) and you want to reduce your energy or water costs or install renewable energy equipment, the PACE program can work for you. Unfortunately, under Michigan’s PACE law, single-family residential properties are not currently eligible. Property owners who undertake a PACE project enjoy the following benefits:
You typically pay nothing down;
On all energy efficiency projects, you must save more than you pay from start to finish; i.e. your semi-annual special tax assessment payments must be less than the money you save in reduced energy costs. Of course, once you have paid off the special assessment, you accrue all the savings with no payments at all;
The contractor guarantees and verifies the energy savings on all projects of $250,000 and up.
Property owners start by performing an energy audit on their facilities to determine the most cost-effective energy interventions. A Certified Energy Manager ((EM), or other certified professional, should perform the energy audit,. The cost for this audit can be rolled into the PACE funding.
Once you have completed the audit and have a list of recommended improvements with a cost/ benefit analysis and energy saving projections, you should contact Newman Consulting LLC to administer the application process to have your project evaluated. Newman Consulting expedites the process for building owner, contractor ,municipalities and lenders.
A summary list of typical improvements include: insulation; roofing; caulking; weather-stripping; air sealing; windows; doors; energy control systems; HVAC and energy recovery systems; LED lighting retrofits; and day lighting systems. Also covered is installation of electric car charging stations to charge PEVs and HPEVs. Any water use reduction or efficiency methods are covered, as well as energy-efficient or water-efficient manufacturing processes or equipment, renewable energy installations (such as solar electric, solar thermal, wind, geothermal), etc.
HOW PACE FINANCING WORKS
PACE financing allows a longer payback period with lower annual amortization and better terms, making many energy projects financially feasible – that otherwise would not be.
Under Michigan’s PACE financing law, counties, cities and townships may work together to form a joint PACE District, which is open to all Michigan counties, cities and townships free of charge. A PACE District allows a property owner to use the property tax mechanism to finance energy improvements. The property owner voluntarily takes on a Special Tax Assessment, which they pay off as part of their property tax bill. That’s a fundamentally different arrangement than a traditional bank loan, in ways that can transform an energy efficiency or renewable project from an engineer’s great idea that the company CFO will not approve, into a clear bottom line winner for the company.
Here’s How:
- Since the PACE loan is a special assessment obligation, it is senior to any mortgage – and hence very secure for the lender. (Because of this, if the property owner has a pre-existing mortgage, they must get the mortgage bank’s consent.)
- Up to 100 percent of the project’s cost can be covered under a PACE special assessment.
- The PACE special assessment “runs with the land” – the owner can sell the property and the new owner simply picks up the payments (and energy savings), just as they begin to pay property tax.
- Because of these features, PACE special assessments can be amortized for 1 O – 20 years or longer (up to the useful life of the improvements or equipment involved) – many times longer than a traditional bank loan. Projects may also garner slight ly more favorable interest rates.
- Under Michigan’s PACE statute. t he general contractor must guarantee the energy savings on all projects of $250,000 and up.
- Bottom line: property owners doing PACE-approved projects will generally pay nothing down and will generate more money in energy savings than their payments to service the special assessment. The project will be cash-flow positive from beginning to end. In fact, under Michigan’s PACE law, this savings to investment ratio must be positive on day one as a condition of project approval. This is not as difficult as it sounds and really works.
To learn more about the PACE program contact: Newman Consulting Group, LLC To see if your buliding qualifies for PACE. NCG performs energy audits, Level I – III. Financial grade audits with cost/benefit analysis should be performed by a CEM (Certified Energy Manager). You can get more information from Newman Consulting Group, LLC www.newmanconsultinggroup.us
Source: Newman Consulting Group
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