Financing Options: PACE Financing

PACE, also known as Property Assessed Clean Energy, is a popular strategy for financing energy efficiently upgrades or renewable energy installations. Unlike most of the financing options we’ve spotlighted, PACE can be used for residential as well as commercial and industrial property owners. Though much is dependent upon state legislation, PACE can be used to finance building envelope energy efficiency improvements, such as insulation and air sealing, cool roofs, water efficiency products, seismic retrofits, and hurricane preparedness measures. In some parts of the country, commercial PACE can be used to fund new construction projects.

Green loans are designed to provide funding for environmentally friendly projects, and PACE allows homeowners and businesses with the funding necessary to install the necessary technology. This program was designed to address the issue with implementing green technology in both residential and commercial properties; the up-front costs are generally very high and prohibitive. PACE loans are funded using property taxes, and only some states have legislation allowing these loans to exist. However, the program is expected to grow as solar energy becomes a more widespread source of alternative power.

PACE green loans are authorized on a state level and managed by municipal governments. The state governments pass laws that allow municipalities to create PACE green loan financing districts; then, they issue bonds. The bonds are then used to finance the actual loans. These loans are available to anyone who lives within the PACE green loans financing districts, and terms can be anywhere between ten and twenty years in length. Interest rates are often fixed, so loan payments are likely to remain the same until the loan is repaid.

PACE programs, however, are not perfect. The financing is designed to stay with the property, meaning eligibility is based primarily on property information rather than income or credit scores. The homeowner’s ability to pay is based on their mortgage and property tax payment history. Significantly, homeowners are financed for home improvements without any assessment of whether the financing is affordable for the homeowner. Essentially, homeowners sign up for a PACE loan to fund a project but don’t understand the actual cost until they have been accepted for the program. This makes PACE loans a relative risk, but if you are confident in your savings and ability to budget, they can be an excellent option.