Solar energy in the United States is now big business, and for many it continues to be very good business. Beyond product manufacturers, system designers and installers, there is growing participation from lenders and institutions looking to facilitate financing for more buyers. This kind of financial participation is not only helping companies meet societal and environmental goals, it is good business for all involved and stimulates even faster solar adoption.
Creative and well designed incentives encourage this participation. One such program has recently been enabled in Pennsylvania through bipartisan clean energy legislation signed by the governor in 2018. The general term for the program is Property Assessed Clean Energy (PACE), and in the Keystone State it is being implemented as C-PACE, targeting commercial properties first.
Property Assessed Clean Energy Explained
PACE is an innovative mechanism for financing energy efficiency and renewable energy improvements on private property. The program allows a property owner to finance the full cost of such projects on a property and then pay the costs back over time through a voluntary property assessment. The unique characteristic of a PACE assessment is that it is attached to the property rather than an individual owner. The assessment stays with the property upon a sale.
For each state implementations differ, but the basic process to allow PACE financing is similar and simple:
- Each state passes laws and defines the framework for communities and local governments to follow.
- A PACE service provider or multiple providers are selected in most cases, where the providers offer information, assistance, and overall program administration. They primarily collect and administer the liens for each project.
- These service providers usually select financing partners as a first step. A key part of program administration is expediting not only the paperwork, but the approval and financing.
Rather than making monthly loan payments, PACE financing simply adds to the property tax payment using the voluntary assessment noted above. Other value for property owners include the following:
Generally lower interests rates. There is high security in a loan repayment, as it is attached to the property tax.
Longer term payback periods. It is common to allow for up to 25 years for assessments to be recovered.
No upfront costs. All costs for installations are included.
Money savings and improved cash flow. By installing a solar energy system and incorporating the assessed value into property taxes, the buyer takes full advantage of the energy savings. Systems are designed to save more in avoided utility purchases compared to the new property tax payment.
C-PACE in Pennsylvania
In Pennsylvania, the program was designed to provide the above advantages and also to flow smoothly and efficiently from start to finish. The service provider is officially titled the Program Administrator. For eligible properties, there are a few guidelines for implementing clean energy projects.
Eligible Property Types – Pennsylvania C-PACE is currently available to commercial properties (office, retail, warehouse, medical, nursing homes, hospitality, agricultural, industrial, and vacant land, among others) located within a C-PACE District.
Eligible Projects – The state includes projects defined as upgrades, renovations, and improvement as well as certain new construction. Approval will generally be limited to projects valued at $10,000 and above (capital costs) and those where the financing term does not exceed the anticipate useful life.
C-PACE Project Process – Each project must follow a few steps, where each step is subject to specific guidelines. The respective C-PACE District service provider is a good source for full details for every local program. In general, the process is as follows:
- Pre-approval. The administrator provides a pre-approval or pre-application to give property owners the opportunity to establish eligibility for participation in Pennsylvania C-PACE before they invest in project development. Choosing a Qualified Contractor and a Qualified Capital Provider at this stage helps expedite the approval.
- Project Design & Cost Estimations. The Qualified Contractor readies the project for build, and the Capital Provider may review the submitted costs and examine all necessary details to ensure the project will meet underwriting requirements.
- Submit Final Application. In addition to final design documents and acceptance by the Capital Provider, the property owner must provide evidence of consent by any mortgage or lien holder.
- Execute Project.
A Qualified Contractor must prove they meet requirements for technical and operational competence, maintain all valid licenses, and are bonded, among others. Pennsylvania C-PACE seeks to facilitate good, locally based jobs for contractors and their employees.
A Qualified Capital Provider must register with the administrator, no later than the final application step. Uniquely, Pennsylvania C-PACE operates an “open market” program so that property owners can select their preferred C-PACE Capital Provider for a project.
A C-PACE District applies to a county or municipality that passes a resolution and establishes a C-PACE District for the purpose of authorizing C-PACE financing.
About C-PACE Districts in Pennsylvania
As of the fall of 2019, the Philadelphia area C-PACE District is the most well defined and active program in the state. The Philadelphia Energy Authority (PEA) is the approved Program Administrator, and the organization’s objectives are to include most of the Pennsylvania program guidelines, with a few additions and changes. The most important of those are the following:
- The minimum financing amount is $100,000, not $10,000.
- The program will allow a lien-to-value level of up to 95%.
- The applicant and Qualified Contractor must submit a Diversity & Inclusion plan showing a commitment to local and diverse business practices, specific to the C-PACE project.
- Terms of up to 30 years.
Where PEA is the official Project Administrator for Philadelphia, the current C-PACE program design assigns Sustainable Energy Fund as the statewide service provider. Beyond Philadelphia, Northampton County and Wayne County in Pennsylvania have been formally granted their respective C-PACE District authority.
Keep an eye on our Blog, as the next up for C-PACE District approval may be Montgomery County. We are thrilled at the opportunity to further help businesses in organizations go solar in our neighborhood.