by Jesse Crabtree
Few people disagree with the idea of clean renewable energy, but for many barriers to entry like high upfront costs make its implementation unfeasible. According to RenewableEnergyWorld.com, even after a 30% investment tax credit, a typical 5kW home solar system costs between $14,000 and $20,000. The Property-Assessed Clean Energy (PACE) program however, is an attempt by the government to help going green require a little less green. What makes PACE different than typical government programs is that it uses funds from private investors to help finance more efficient home energy systems. Homeowners are extended a special type of loan to pay for energy improvements such as solar panels or proper insulation and in turn pay off the loan through higher property taxes. These loans are packaged into bonds and sold to private investors, who in turn receive the extra property taxes in annuity—think mortgage backed securities but without the dubious valuations and questionable morality.
The program has expanded to 31 states since its inception in the city of Berkeley in 2008 but has had trouble getting off of the ground with some homeowners because of the nature of the loan. Unlike most loans, which are assigned to the specific person taking them out, PACE loans are assigned to the property itself. This means that, should a homeowner buy that home before the loan has been repaid, the extra tax burden is assigned to the new owner. All else constant, this detail would not affect homeowners because the price of the sale would be reduced to compensate for the extra taxes incurred (and conversely increased for the money saved on heating or electricity). However, because this loan is paid in the form of a tax, it is given priority over the first mortgage in the event of a default. Such a distinction has caused both the Federal Housing Administration and the Federal Housing Finance Agency to withhold support for the program and has even caused mortgage-financing programs such as Fannie Mae and Freddie Mac to blacklist the purchase of all homes with PACE liens. With no further mortgage loan prospects, otherwise desirable properties can sit on the market for months.
The President Obama is now taking steps to solve this problem. In August of 2015 with the help of the Federal Housing Administration, the White House revealed a policy that would make PACE loans subordinate to FHA single-family first-mortgages. Mortgages will now be paid back before PACE liens, thus eliminating any issue with larger mortgage buyers.
The PACE program has already done $1 billion in projects since its inception and is now scheduled to be adopted in over 90 cities and counties in California alone. With its major obstacle gone, I foresee that this program will have a significant impact on America’s energy landscape.
“Berkeley FIRST.” City of Berkely. City of Berkely, n.d. Web. 02 Feb. 2016.
Cinnamon, Barry. “Listen Up: PACE Financing for Homes and Businesses with Cisco Devries.” Renewable Energy World. RenewableEnergyWorld.com, n.d. Web. 03 Dec. 2015.
Hanley, Steve. “PACE Loans Can Interfere With Home Sales.” CleanTechnica.com. Clean Technica, 26 Oct. 2015. Web. 02 Feb. 2016.
Wesoff, Eric. “White House Announcement Means ‘Today Is a Very Big Day for PACE’.” Greentech Media. GreentechMedia.com, n.d. Web. 24 Aug. 2015.