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PACE Alternatives— Financing Mechanisms to Accelerate Energy Efficiency

PACE Alternatives— Financing Mechanisms to Accelerate Energy Efficiency. Eric Engelman Energy Policy Analyst City of San Diego. Outline. Problem: EE Financing Market Gap PACE Issues and Potential Fixes PACE “Alternatives”

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PACE Alternatives— Financing Mechanisms to Accelerate Energy Efficiency

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  1. PACE Alternatives—Financing Mechanisms to Accelerate Energy Efficiency Eric Engelman Energy Policy Analyst City of San Diego

  2. Outline • Problem: EE Financing Market Gap • PACE Issues and Potential Fixes • PACE “Alternatives” • Financing Programs: Government Grant/Rebate Program, On-Bill Financing, Loan Programs • Loan Program Types: Revolving, Loss Reserve, IR Buy-down, Hybrid • Commercial PACE

  3. EE Financing Gap • Financing Energy Efficiency: How do you overcome the up-front cost barrier???

  4. EE Financing Gap • Lower rate  Shorter Payback  People more likely to invest in EE

  5. Property Assessed Clean Energy (PACE) Issues • FHFA directed Fannie and Freddie to avoid purchasing mortgages with a PACE lien. What now? How Fast? • Legislative Fix: HR-5766 Quick/Unknown • Legal Fix: Various lawsuits Slow • Institutional Fix: Dodd-Frank Wall Street Reform and Quick/Unknown Consumer Protection Act MAY NOT BE FAST ENOUGH…..ALTERNATIVES???

  6. Property Assessed Clean Energy (PACE) Financing • PACE would have overcome two main obstacles to EE retrofits: 1. Makes loans much less risky  lowers interest rate 2. Eliminate the barrier for homeowners that think they may leave their home before EE improvements “pay back”

  7. Residential PACE Alternatives: Strategies to get the interest rate down TYPICAL MARKET RATE FOR UNSECURED LOAN: 11-15% ATTRACTIVE RATE TO ACCELERATE EE RETROFITS: 0-8%

  8. Res. PACE Alternatives: Loan Programs

  9. Designing Loan ProgramsSetting the Rate

  10. Designing Loan ProgramsIdentify Target Rate

  11. PACE Alternatives: Commercial PACE • Commercial Mortgages not subject to some of the legal challenges raised by FHFA • Not purchased by Fannie and Freddie • Commercial Mortgages would require lender consent to implement PACE, overcoming first lien issue • BUT other potential issues • FHFA: PACE assessments unlike traditional assessments (size, duration, lack of community benefits) • FHFA needs to clarify whether its direction could change lending standards for commercial mortgages • OCC: Guidance mentioned commercial properties in its statement that raised “safety and soundness concerns” • OCC: Directed national bank lenders to take steps to mitigate exposure including “securing additional collateral” for commercial properties. Two interpretations: • Lending standards should be increased throughout a community that undertakes PACE • simply require banks to carefully underwrite commercial properties that are requesting permission for a PACE lien

  12. PACE Alternatives: Commercial PACE • Increases cash flow and economic value for lender, consent is reasonable • Would likely not require government funds for assessment • Municipal government serves as collector of assessment

  13. PACE Alternatives: Commercial PACE Potential Structure Lender Payments Loan Local Jurisdiction Assessment Commercial Property

  14. PACE Alternatives—Financing Mechanisms to Accelerate Energy Efficiency Eric Engelman Energy Policy Analyst City of San Diego eengelman@sandiego.gov

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