Editor’s note: Property assessed clean energy financing (PACE) is a strong, growing funding option for solar installations. The following is commentary from the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy on one successful PACE finance structure.
Big box retailers are leading in commercial solar installations in the U.S., but solar’s energy-saving benefits aren’t limited to Fortune 500 companies. Hospitals, small businesses, shopping malls, multi-family and other commercial and industrial properties have a new tool to help them go solar: the PACE Lease.
De-Meter Power first developed the new financial tool through the SunShot Initiative Technology to Market program, which helps entrepreneurs bring innovative, early-stage technologies to the market.
The PACE Lease is a unique project finance structure that combines both property assessed clean energy (PACE)—a public enabled financing structure that provides upfront payment for a solar installation and enables property owners to pay back the funds via property taxes—with a long-term services contract called a power purchase agreement.
The PACE Lease enables project developers to internalize the benefits of a solar installation’s tax incentives and pass them on to customers as a fixed, low-cost annual payment for energy services over the course of 20 years. Using both tax equity financing and a services contract gives businesses a way to mitigate upfront capital costs, limit construction and maintenance risks, and lock in low-cost rates for the solar energy the system creates for years to come.
Because repayment for the solar system is tied to a line-item on a property tax bill rather than a property owner’s personal or corporate credit, default risks are much lower. Just like it’s easier for a customer to pay for a solar system incrementally if it’s tied to their electric bill, this form of on-bill financing for a company makes it easier for a company to pay and maintain a larger solar system. In addition, because the PACE Lease enables customers to obtain financing on terms traditionally offered only to those with the highest credit quality, the new financing mechanism is a scalable solution that can bring liquidity to the solar market and unlock solar for commercial and industrial properties across the country.
The PACE Lease has already been used to finance projects in California and Florida and the innovation has earned the company recognition from the International Energy Agency-Renewable Energy Technology Division as one of 2015’s most innovative solutions for expanding renewable energy use throughout the country.