FEATURED ARTICLE: The New Solar Economy: A Hazy Path Toward Harnessing the Power of the Sun
installations around the country is enormously contentious. Typically, when someone wants to finance a big-ticket home im- provement, they pay for the work in cash, with a credit card, a home equity line of credit (HELOC), a second lien, or an installment loan, say 36 months to pay off a $7,000 HVAC system. In each of these cases, any existing mortgage financing secured by the property is undisturbed. If the property is foreclosed, the mortgage is the first debt which must be fully paid after taxes. However, in the world of renew- able energy, a different funding approach has been introduced: Property Assessed Clean Energy (PACE) financing. “PACE programs,” says the En- ergy Department, “allow a property owner to finance the up front cost of energy or other eligible improve- ments on a property and then pay the costs back over time through a voluntary assessment. The unique characteristic of PACE assess- ments is that the assessment is attached to the property rather than an individual.” According to PACENation, “Prop- erty owners across the U.S. are using PACE financing because it lowers utility bills and may make their buildings more valuable. PACE pays for 100 percent of a project’s costs and is repaid for up to 20 years with an assessment added to the property’s tax bill. PACE financing may stay with the building upon sale and is easy to share with tenants.” As of May 2018, says the group, financing worth nearly $5.2 billion has been used with 220,000 residen- tial properties while more than $850 million has been raised for commer- cial projects. California, which hopes to generate all of its electricity from renewable sources by 2045, is home
to the largest PACE program. As of mid-2018, financing worth approxi- mately $3.34 billion had been raised in the state to improve more than 146,000 properties. PACE BENEFITS The PACE concept creates a lot of winners. Additional renewable energy is generated within a juris- diction. New jobs are created. The Solar Foundation says in 2018 there were 242,000 solar jobs nationwide. The need to consume coal and oil – and the pollution they produce – is reduced. Property owners benefit be- cause monthly utility bills decrease. Bondholders are also winners. PACE loans are considered a gov- ernmental “special assessment” which means they have priority in the event of a foreclosure; that is, they must be paid off in full before any money can be paid to mortgage holders. Securities firms benefit from the fees and charges pro- duced from the sale of PACE bonds. PACE RESERVES California has established a $10 million reserve to protect PACE bondholders. But, is this enough? So far, the reserves re- main untouched. The program was launched in 2014 and as of October 2018, there were no claims against the reserve fund. The catch is that past per- formance does not necessarily guarantee future results. How far will $10 million go with a program that has more than $3.3 billion in outstanding obligations? What happens if there are $11 million in claims? Or $40 million? According to the state’s Public Resources Code, Section 26056, “This chapter does not create any liability or obligation upon the State of California and none shall be in-
10 think realty housing news report
may 2019 11
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