PACE Financing

Property-Assessed Clean Energy (PACE) is a finance program designed to enable property owners to make energy efficiency improvements and install small-scale renewable energy systems. Property owners pay for these improvements over their functional life (up to 20 years) through an annual assessment on their property tax bills, thus eliminating the upfront cost barrier to implementing these improvements.

Over a two year period, PACE enabling legislation was adopted in 24 states, with dozens of municipalities either launching or developing PACE financing programs. However, on July 6, 2010, the Federal Housing Finance Authority (FHFA) and the Office of the Comptroller of the Currency (OCC) directed Fannie Mae, Freddie Mac, mortgage lenders and national banks to effectively avoid originating, purchasing, or insuring mortgage loans secured by properties with PACE financing. The FHFA and OCC directives have effectively brought the development and operation of PACE Residential programs to a halt (although programs in Sonoma County and Palm Desert, CA and Babylon, NY continue to operate despite FHFA's actions).

PACE programs aimed at the commercial sector, on the other hand, are likely not precluded by the regulators' July 6 directives, provided that those programs require existing lender consent as a prerequisite to extending PACE financing.

NRDC was an original member of the PACENow Coalition, a group of individuals, NGOs and companies interested in advancing the PACE financing model. NRDC currently serves on PACENow's steering committee, and we have hired a consultant to guide PACENow in its efforts to

  • help municipalities design, develop, standardize and launch PACE Commercial programs, and
  • resolve the current FHFA and OCC stalemate with a bipartisan solution that will revitalize PACE Residential programs, enabling PACE financing to regain its unprecedented momentum as the best tool available for local communities to drive home energy retrofits.

Over the coming year, NRDC will continue to work with PACENow, with the objectives of formalizing and launching the entity as a 501(c)(3) corporation, helping to raise seed capital for the new entity and arrange for an appropriate fiscal agent, and continuing to advise PACENow to help it achieve its mission of advancing the PACE financing model in both the commercial and residential sectors, and ultimately establishing a new capital market asset class of PACE securities.

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