The U.S. Congress may be paralyzed from moving on anything related to energy and the environment, but private companies are not. Seeing that short-term costs can provide for substantial long-term savings, many companies have long been adopting efficiency techniques for powering and outfitting their buildings. Now, these private companies are taking a new step forward, adopting a government financing method, and making it their own.
Local and state governments around the country started PACE—Property Assessed Clean Energy—financing as a method of assisting citizens with paying for the typically high upfront capital costs associated with installing clean energy systems or energy efficient materials in their homes. In exchange, citizens would agree to a property-tax surcharge. (It is important to note that only those residents desiring the upgrade would be subject to the surcharge.)
Through this approach, PACE allows the costs of the improvements to be linked to the value of the property. So if a homeowner sells the property, the financing repayment will also transfer during the sale. According to the folks at Lawrence Berkeley National Laboratory, this has numerous associated benefits, including: long-term, fixed-cost, attractive financing; loans that are tied to the tax capacity of the property rather than to the owner’s credit standing; and a potential ability to deduct the repayment obligation from federal taxable income, as part of the local property tax deduction (bonus!). To date, more than 20 states have authorized localities to step up this type of financing option.
Seeing the benefits of such a method, Ygrene Energy Fund in Santa Rosa, CA, is leading a consortium of business groups to invest as much as $650 million in projects that will improve the energy efficiency commercial buildings in the Miami and Sacramento areas. Ygrene and its partners have exclusive rights to offer these types of upgrades for five years. Confident in their success, they will offer a warranty stating that the projected utility savings will materialize.
How will this be executed? Lockheed Martin, a partner in the process, will be involved in the engineering of projects; Barclays Capital will provide the short-terms loans to pay for the upgrades; insurance underwriter Energi will back the warranty; the reinsurance company Hannover Re will back Energi’s contracts. As projects wrap, Barclays will bundled these loans into long-term bonds and sell them off to retirement funds, who have expressed interest in purchasing. Like with residential PACE financing, the initial loans will be repaid through a property-tax surcharge.
Experts point out that a retrofit can cut the building’s energy use by so much that the retrofit can pay for itself in as little as five years. New York’s Empire State building is one such example; retrofitting cut energy use of the building by nearly 40%.
While the government still has a place in this process, it is reassuring to know that its paralysis will not stunt the growth of need improvements–improvements that, in aggregate, have the potential to markedly reduce our carbon footprint.