Solar, Storage, Wind Power

PACE Innovators ‘Beat the Street’ with Explosive Growth in Clean Energy Financing

At a time when investors are skittish over market volatility, they couldn’t be more bullish on the economic potential of renewables, in particular a form of clean energy financing known as Property Assessed Clean Energy (PACE).

PACE allows residential and commercial property owners to finance 100 percent of over 60 categories of renewable energy, energy efficiency and water conservation improvements with no money down, no FICO score requirements or encumbrance of personal or business credit.

clean energyImage: PACE provides 100 percent upfront financing for homeowners looking for renewable energy, water conservation and energy efficiency upgrades. Credit: Renovate America

Improvements include solar, wind and storage as well as heating and cooling systems, lighting improvements, water pumps, insulation, low water-flow fixtures and new windows and doors. Eligibility is based strictly on property values. Financing is repaid over periods of up to 25 years via voluntary assessments on property tax bills.

According to industry advocate PACENation, combined residential and commercial U.S. PACE financings have exceeded $2.3 billion to date, delivering energy improvements and retrofits for an estimated 97,000 households and 750 commercial building/multi-family structures, while creating 20,500 clean energy jobs.

Scientific American identifies PACE as one of the top 20 “world changing” ideas of all time.

Highlighted among our 2016 Innovators Driving Energy Independence are two PACE financing companies that investors, consumers, contractors and property owners are banking on to fuel the fires of today’s clean energy economy — even if the banks themselves aren’t as eager to embrace PACE as the balance of the sustainable world.

The first — residential PACE provider HERO — last month closed on $305 million in AA-rated green bonds. It’s the firm’s seventh financing round; the largest PACE securitization ever completed by any issuer.

The second, commercial PACE pioneer Figtree Financing, recently announced a definitive merger agreement with solar financing company Dividend Solar, Inc., that commits up to $200 million from LL Funds to fuel the growth of the combined entity and much-needed commercial building improvements across California.

Matrix: An econometric study conducted by the ECONorthwest found that $4 million in PACE funding generates $10 million in gross revenue, $1 million in combined federal, state, and local tax revenue, and 60 clean, green jobs.
Credit:  Renovate America

What Is This Disruptive Rocket That Fuels Such Explosive Growth While Stoking the Confidence of Investors?

“I think PACE in general is solving a marketplace failure in the residential sector in terms of energy efficiency, renewable energy and water conservation,” said Ellen Qualls, vice president of communications and public affairs for San Diego-based Renovate America. “If you look at census data from 2010, 2011 (when Renovate America got its start), you see that every year, about one in six homeowners makes an upgrade or repair to their home that affects energy consumption, whether it’s insulation, a roof, windows/doors or solar panels.”

That’s the good news. Qualls said that other studies show that historically, homeowners have been boxed into choosing less efficient products to install based on the up-front sticker price. But now there’s an app for that. In approved cities and counties across the country, thousands of qualified PACE contractors can gain nearly on-demand approval for desired home improvements on their PCs and smart phones while meeting with consumers in their homes or offices.

That on-demand quality of PACE matters for residential and commercial interests. If an air conditioning system fails or windows need replacing, homes and businesses don’t necessarily have funds set aside to purchase the best solutions to accommodate their properties.

“PACE gives [property owners] who have equity an option not dependent on FICO scores or cash up front or a limited time horizon to pay it back,” Qualls said.  

HERO Champions Unprecedented Residential PACE Market Investment

In the residential space, Renovate America’s HERO brand has proven particularly palatable to California consumers, who, since 2011, have received most of the successful PACE investment —$1.4 billion. Things are percolating to bring HERO to Missouri and Florida as well, giving the company a coast-to-coast footprint to build out according to marketing opportunity and the amenability of policy makers across the U.S.

Even with interest rates with a weighted average of 7.96 percent, the numbers play out. Not only are homeowners minimizing their energy and water consumption for monthly savings on their utility bills, but in the first published economic study of homes with PACE upgrades, the Journal of Structured Finance reported that homes with PACE assessments have higher net resale values than those without — even after financing costs are taken into account.

With PACE financing, improvements are guaranteed to meet federal Environmental Protection Agency and Department of Energy Efficiency and Conservation standards.

Figure: California-based Renovate America’s HERO brand has funded the lion’s share of residential PACE to date, $1.4 billion in residential home improvements since 2011.
Credit:  Renovate America

“We’re financing significant, qualified improvements in people’s homes,” Qualls said. “Be it solar panels and the new, reinforced roofs to support them, new HVAC systems or energy-efficient windows and doors, our contractors are equipped with the information to let homeowners know the value proposition and when it’s going to pay off for them.”

Contractors aren’t paid until their improvements are 100 percent complete and homeowners sign off that the project was completed to their satisfaction — or as Renovate America’s Qualls likes to say, “until they see their meter spinning backwards.”

It appears to be working. HERO’s current inventory of PACE-financed improvements have created an estimated 12,000 local jobs and are projected to save property owners more than $2.4 billion in energy bills and reduce carbon emissions by 2.4 million tons.

To engender a level of contentment among customers that creates lifelong, even intergenerational relationships, the energy innovators at HERO are championing a new kind of customer advocacy that delivers life-of-ownership consumer protections for homeowners making energy-related improvements. It’s designed to assuage uncertainty about adoption of money-saving energy solutions — and their faithful delivery of performance and ongoing energy savings. It’s also a means to help homeowners through the process of marketing and selling their homes (and the PACE liens that travel with them) as they transition to new abodes.

“We realized that we exist in communities with the blessing of locally elected officials,” Qualls said. “We die by that same sword. If we’re not upholding the highest standards of trust with these improvements, communities won’t ask us to stay, no matter how many jobs we’re creating.”

Lead image credit: Mike Pepler | Flickr