Commercial PACE: Program Models and Decision Points · 2017-07-25 · U.S. DEPARTMENT OF ENERGY OFFICE OF ENERGY EFFICIENCY & RENEWABLE ENERGY 1 Commercial PACE: Program Models and

1 U.S. DEPARTMENT OF ENERGY OFFICE OF ENERGY EFFICIENCY & RENEWABLE ENERGY

Commercial PACE: Program Models and Decision Points DOE’s Partnerships and Technical Assistance Weatherization and Intergovernmental Programs Office

July 25, 2017


Logistics

• The recorded webinar, transcript and slides will be available online at: https://energy.gov/eere/slsc/state-and-local-solution-center

• Attendees are in listen-only mode. • Attendees are encouraged to type questions and

feedback in the webinar interface tool throughout the webinar. We will have time at the end to answer questions.

https://energy.gov/eere/slsc/state-and-local-solution-center

https://energy.gov/eere/slsc/state-and-local-solution-center


Overview

• Purpose – Inform state and local decision makers and stakeholders

about the different C-PACE models and options available in their jurisdiction.

• Target Audience

– State and local decision makers and stakeholders with a developed understanding of C-PACE fundamentals.

– State and local decision makers and stakeholders looking to better understand program design models and the options available for key decision points.


Agenda

• Overview of C-PACE Mechanics and Market

• Key Decision Points and Options

• Program Models Across the U.S. (Sandy Fazeli, National

Association of State Energy Officials)

• Q&A and Conclusions


Poll Question 1


Overview of C-PACE Mechanics and Market

• What is C-PACE?: A tool for financing energy improvements through a special, voluntary tax assessment placed on a commercial property.

– Commercial property generally defined as:

• Commercial • Industrial • Agricultural • Multifamily (4+ units) • Certain non-profit properties



• What can C-PACE do that traditional financing can’t?: – Longer term financing secured by the property and supported

by a priority tax assessment and transferability of the lien. – Lower interest rates enabled through the security of a well-

understood tax assessment mechanism. – Result: A business case for deeper, longer payback energy

efficiency, renewable energy, and other improvements.



• What are the steps in a C-PACE project?

An Administrator (public or 3rd party) approves the project and the property owner.

Mortgage holder provides consent and financier provides project capital.

A contractor completes the PACE-eligible building improvement.

Property owner pays for completed work via a property tax assessment.

Municipality or other tax district remits payment back to the financier.



C-PACE programs integrate and benefit multiple parties

Party Role Benefit of C-PACE Property Owner (Borrower)

Initiate building improvements Building improvements and increased property value

Contractor Develop and install projects Increased business activity

Financier or Lender

Provide capital and coordinate underwriting

Increased business activity

Mortgage Holder Consent to C-PACE lien Increased property value and improved ability to pay

Program Administrator

Facilitate collaboration among parties, ensure compliance, other roles

Projects support staff, generate profit

Local Government Adopt enabling ordinance, place tax assessment, other potential roles

Job creation, economic development, and progress towards energy conservation goals

State Government Adopt enabling legislation, other potential roles



Credit: PACENation, June 2017



• Market Trends – Nearly $.5 billion in C-PACE financing across the U.S. including

~1,030 projects in 13 states – Five states account for ~85% of C-PACE financing by $ volume

Credit: PACENation, July 2017



• What are state and local governments doing now? – Fact-finding around a very complicated and new topic; – Watching the market and learning from peers; – Many states have amended their C-PACE enabling legislation; – Many state and local governments, in partnership with

stakeholders, have developed and/or revised program guidelines on multiple occasions;

– Many state and local governments have procured third party administrators, but continue to evaluate and adjust roles and responsibilities as needed.


Poll Question 2


Key Decision Points and Options

Law vs. Guidelines vs.

Market

Eligible Measures

Guidance and Administration

Level of Program

Organization

Multi-Jurisdictional

Bonds vs. Direct Lending

SIR



• 1. Legal Weight of Program Features – Question: What program features should be formalized in

law, outlined in guidelines, or left to the market? • Formalize program features in legislation.

– E.g., Types of eligible measures including energy efficiency, renewable energy, water conservation, etc.

• Develop best practices and/or guidelines; inclusion in legislation isn’t necessary or appropriate.

– E.g., Technical standards associated with different types of measures.

• Defer to the market to resolve anything not outlined in law or guidelines.

• Establish feedback loops between program implementers and state policymakers to identify challenges and solutions.



• 2. Program Guidance for Administrators – Question: What are the options for developing program

guidelines and facilitating the program long-term? • Defer to market actors (profit or non-profit) or local

governments to organize stakeholders, develop guidelines, and build markets with minimal state-level input.

– E.g., California • Place administrative authority with a public or quasi-public

state entity to develop guidelines and standards. – E.g., Connecticut, New York, Colorado

• Form a decision-making body or advisory board composed of stakeholders from the public and private sector to develop guidelines and standards.

– E.g., Utah, Texas



• 3. Level of Program Organization – Question: How much of the C-PACE program apparatus is

organized around a uniform state program vs. decentralized to the local level?

• Statewide Program Model • State and Local Option Program Model • Strategic State Support Model • Limited or No State Support Model



• 4. Eligible Measures Question: What building improvements or measures should be eligible for C-PACE financing?

• Typically outlined in broad terms in legislation, and back-stopped by detailed technical standards post-legislation.

• Potential measures include: – Energy efficiency improvements – Renewable energy installations – Combined heat and power – Battery storage – Electric vehicle charging equipment – Water conservation improvements – Seismic improvements – Hurricane or wind proofing improvements



• 5. Savings to Investment Ratio (SIR) Guidance – Question: Should we require that lifetime cost savings from the

PACE improvements be greater than the upfront cost? • In many states, SIR >1 is considered a best practice because it

serves a consumer protection function and facilitates mortgage holder consent. However, there are many situations where an SIR requirement may not be appropriate.

• Options: – Formalize in legislation vs. guidelines – Require SIR for certain types of measures and not others – Remain silent on SIR and defer to the market



• 6. Financing with Bonds vs. Direct Lending – Question: Are borrowers required to (or allowed to) use bond

proceeds to finance improvements, or can borrowers arrange financing directly with a third party lender of their choice?

– Secondary Question: Under the third party lending model, programs may establish pre-approved lenders, create an open lending environment whereby borrowers can use their preferred lender, or both options can co-exist. Which direction works best for our program?

• Options: – Require bonding – Allow for third party financing alongside bonds – Establish pre-approved (default) lenders



• 7. Multijurisdictional Arrangements – Concept: The ability of a single statewide or regional entity to

levy assessments, collect or service payments, manage a third party program administrator, and/or issue bonds across multiple local jurisdictions.

– Question: Should our program include multijurisdictional features?

• Options: – Create a new regional or statewide entity (e.g., CO) – Work with existing multijurisdictional entities including regional

authorities or joint powers authorities (e.g., OH, CA) – Defer to local governments to manage PACE-related

responsibilities w/o assistance from multijurisdictional entity



• 8. Roles and Responsibilities of Program Administrators – Question: What responsibilities need to be undertaken by a

third party program administrator vs. coordinated by other parties or left to the market?

• Responsibilities to consider: – Determine project eligibility and associated due diligence – Coordinate or conduct energy savings analyses – Facilitate mortgage holder consent – Coordinate with local tax assessors – Recruit and/or train contractors – Conduct marketing and outreach – Engage and recruit local governments – Conduct quality assurance/quality control

Sandy Fazeli, NASEO Managing Director July 25, 2017 National Association of Energy Services Companies Workshop

COMMERCIAL PACE STATE PROGRAM AND SUPPORT MODELS

ABOUT NASEO 24

Membership includes the 56 Energy Officials from the states, territories, and the District of Columbia, as well as private-sector Affiliate partners

Serves as a resource for and about the Energy Offices on a number of topics, including building energy efficiency, clean energy financing, fuels and grid integration, government affairs, transportation, energy policy planning, and climate

Works through topical committees to facilitate peer learning across states to improve the effectiveness of energy policies and programs

Visit www.naseo.org for more information

C/o the Alaska Energy Authority

C/o the Hawaii SEO

http://www.naseo.org/

+ NASEO’s Affiliates A robust and engaged network of +60 private-sector partners, including representatives from business, trade associations, nonprofit organizations, educational institutions, laboratories, and government.

26 WHY IS C-PACE IMPORTANT TO SEOS?

PUBLIC PURPOSE STATE-LOCAL CONNECTION

VERSATILITY VOLUNTARY MECHANISM

+ THE (POTENTIAL) CHALLENGE: MARKET INCONSISTENCY

27

PACE 33 SETS OF LAWS

“ONE” MECHANISM

+2,500 MUNICIPALITIES CURRENTLY PARTICIPATING

28 LOTS OF COOKS, LOTS OF KITCHENS Large

commercial property owners Contractors and

project implementers Commercial real

estate lenders Institutional

investors Local

governments

+ SEO INVOLVEMENT CAN LEAD TO ECONOMIES OF SCALE, COORDINATION

PACE is complex, requires state, local, and private action

Growth of C-PACE has been led at city- and county-level

Some locals may not have bandwidth to take on C-PACE

Vast market opportunity ($88-$113b for large commercial buildings alone)

Property owners, contractors, capital providers, and investors are not limited by city or county boundaries

How can states help organize and guide the market?

29

Available at http://naseo.org/publications. With support from the U.S. Department of Energy.

+ OPTIONS TO ORGANIZE THE C-PACE MARKETPLACE Administration Individual, decentralized programs (government- or privately-run), with

individual local jurisdiction as a boundary Statewide programs, with local jurisdictions “opting in” (Connecticut or

Colorado C-PACE programs) Hybrid models (statewide-available programs that may be government-run,

government-supported, or entirely privately-run and financed)

Voluntary Standards and Practices Program administration may be decentralized, but statewide entities can

support the adoption of consistent best practices across individual programs Regional (multi-state) coordination and standardization of processes

NOTE: SEO may not always be the best agency to take on a coordinating or organizing function; varies on a state-by-state basis

30

31

Connecticut Green Bank serves as single statewide program administrator.

Auditors and contractors are engaged extensively to promote C-PACE use.

Second largest C-PACE market in country (behind CA).

Owner-driven financing.

CONNECTICUT

COLORADO C/O the Connecticut Green Bank

Participating Counties in CO C-PACE

Board of County Commissioners must adopt a resolution opting into the program

Administrator provides third-party review of technical and financial aspects of projects (ICP protocol)

Colorado Energy Office is a key partner

32 NEW YORK

Statewide program option streamlines and shares services among many participating municipalities.

Administrator leverages resources from NYSERDA and credit from NY Green Bank.

MICHIGAN

Privately-funded, privately-administered program available statewide

20 municipalities participating, well over half of the state’s population

Exclusively uses private capital – no local or state funds

C/O the Energy Investment Corporation

C/O Lean and Green Michigan

33 TEXAS Pre-legislation: ”Keeping PACE in

Texas” business coalition activated to launch statewide, voluntary, market-oriented “PACE in a Box” program with goal of having an an “orderly, consistent, and statewide approach to PACE design and implementation” TX State Energy Conservation

Office chaired technical standards working group

PACE in a Box voluntary standards have been adopted and promulgated by the Texas PACE Authority, whose program covers 11 counties and two major cities (Dallas and Houston)

July 2017: City of Dallas completed $24m C-PACE project (before/after photos to right)

C/O of Keeping PACE in Texas and the Texas PACE Authority

34

VIRGINIA

March 2015: Virginia General Assembly amended code to give PACE the same priority status as a tax lien and to task the VA DMME with developing option uniform financial underwriting guidelines with input from broad stakeholder group.

December 2015: DMME releases Final Uniform Statewide Financial Underwriting Guidelines for Clean Energy Loans Made By Localities Under §15.2-958.3 of the Code of Virginia

MID-ATLANTIC PACE ALLIANCE

Partnership between Maryland, District of Columbia, and Virginia to rapidly grow the regional PACE market by establishing standardized, low-cost program structures

https://www.pacealliance.org/



+ STATEWIDE C-PACE: MAY NOT BE FOR EVERYONE Statewide programs are

not currently the norm

Country’s largest market, California, is distinctly bottom-up and decentralized

Market research, assessment of existing PACE and property tax laws can help states determine most effective course of action

35

+

THANK YOU!

Sandy Fazeli NASEO Managing Director [email protected] 703-299-8800 x 117 www.naseo.org

mailto:[email protected]

http://www.naseo.org/


Questions and Answers

• Please type in questions


Poll Question 3


U.S. Department of Energy C-PACE Resources • State and Local Solution Center

• Coming soon from Lawrence Berkeley National Lab: Lessons in Commercial PACE Leadership: The Path from Legislation to Launch

• Better Buildings Summit Presentations

https://energy.gov/eere/slsc/property-assessed-clean-energy-programs

https://betterbuildingssolutioncenter.energy.gov/search?f%5B0%5D=field_content_type:1440


Other C-PACE Resources

• Accelerating the Commercial PACE Market: Statewide Programs and State Energy Office Participation in Property Assessed Clean Energy (PACE) Financing. A 2016 report prepared by NASEO.

• Commercial PACE Roundtable Presentations from states on C-PACE strategies for program design and financing. A 2016 event hosted by the National Governors Association.

• PACENation

Resources on PACE market data, state enabling legislation, case studies, and much more.

http://naseo.org/data/sites/1/documents/publications/CLEAN_Master%20NASEO%20PACE%20Memo%202016-5-18%20FINAL.pdf

https://www.nga.org/cms/home/nga-center-for-best-practices/meeting--webcast-materials/page-eet-meetings-webcasts/col2-content/main-content-list/commercial-property-assessed-cle.html

http://pacenation.us/


Acknowledgements

The following organizations provided valuable input for this webinar: • Lawrence Berkeley National Laboratory • PACENation • National Association of State Energy Officials • National Governors Association • Colleagues at DOE/OWIP


Thank You

Sean Williamson U.S. Department of Energy Partnerships and Technical Assistance T: 202-287-6673 [email protected]

Sandy Fazeli National Association of State Energy Officials T: 703-299-8800 x117 [email protected]

State and Local Solution Center http://energy.gov/eere/slsc/state-and-local-solution-center



Documents

Commercial PACE: Program Models and Decision Points · 2017-07-25 · U.S. DEPARTMENT OF ENERGY OFFICE OF ENERGY EFFICIENCY & RENEWABLE ENERGY 1 Commercial PACE: Program Models and