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We have made little to no progress since PACE (Property Assessed Clean Energy) entered the scene as an investment tool to help prevent climate change in 2008. PACE investments minimize market caused investment risk for all consumers and all lenders. Local governments can create a PACE program so that the public at large is not forced to take a major market risk alone to upgrade their property infrastructure to consume minimal amounts of energy,minimize fossil fuel consumption and add renewables on their property.
By using a Property Assessment, the public may choose to effectively join an individualized special assessment district. Special real estate assessments can survive a sale or transfer of ownership. That, combined with a long term secure investment is what gives PAEC its power. Many homes and commercial properties already have the same type of special assessment real estate taxes paying for water, sewer, roads, bridges and even metro expansion or other similar infastructure beneficial to all. It is interesting that these other assessments survive all sales and transfers and are commonly managed by mortgage payments. They can also be covered by mortgage company escrow collections just like standard real estate taxes and privagte insurance.
As an example of the power of PACE financing, if you select 10 kW of solar panels costing $25,000 and finance it for the guaranteed life of over 25 years in Richmond (on a 30 degree south facing roof you will generate on average $1,578 dollars per year in electricity). The Federal Tax incentive takes care of 26% of the total costs (this year and next) of the PACE financed amount of $27,500. If you finance it through a 25 year PACE program assessment the annual payment at 5.75% will be $1,544.30 In other words you will be paid a whopping $24.30 per year to let the PACE program provide you with solar panels. I know it's not much money but it is a tool that needs to be made available to all consumers. Solar is easiest to illustrate for how PACE can work but the least rewarding financially. It is more complicated to figure out how geothermal HVAC, better insulation, duct sealing and energy controls will impact savings. They can all usually provide better benefits but are not as easily illustrated.
What can be seen is the asset value has increased by the value of the solar panels and the owner has a few dollars more in their pocket to pay their mortgage. Next year the savings will likely be more. It's hard to see why a mortgage lender wouldn't want to do both the PACE assessment investment and the mortgage. 100% of the PACE re-payment through the special assessment will be made, the term is not as long as a thirty year mortgage and the interest rate is higher. Meanwhile, the mortgage is subject to market risk so (as in 2008) they can end up upside down on a mortgage and even furthe upside down if the solar panels are financed in a bigger mortgage .
Right now if a property owner is contemplating a deck or a Solar PV investment, the deck usually will win. If a builder is contemplating isofoam or fiberglass insulation, fiberglass wins. Even though closed cell foam adds as much as 300% structural resilience, is a moisture and air barrier and reduces the AC tonnage
VA first passed C(ommercial)-PACE enabling legislation in 2009. Counties waited many years to develop programs. The first projects closed within the past month allowing solar panels to be installed on restaurant in Arlington.
Isn't it time to pick up the PACE in your community?
I would strongly advise against pursuing R-PACE in Virginia. The PACE model is better suited for commercial properties. R-PACE creates conditions for fraud and abuse by predatory profit-driven companies that do not have the interests of the customers truly in mind, especially for under-resourced communities. This is demonstrated throughout the country where R-PACE exists and was even a featured segment on HBO's Last Week Tonight with John Oliver recently.
I would also encourage decision-makers to learn from the experience of a Virginia electric utility using private, profit-driven companies to deliver energy efficiency services to income-qualifying households before turning to the weatherization provider network in 2015. The delivery of the program created conditions for contractors to optimize profits without taking building science and how the house works as a system into consideration. This resulted in moisture problems and other health and safety issues for the participants, many of who reached out to weatherization providers later on for support and corrective services. I would be concerned the development of an R-PACE program without stringent guardrails would result in similar outcomes.
And why develop an R-PACE program with guardrails when income-qualifying households already have access to other programs carrying far less risk? Federal WAP/LIHEAP and current electric and gas utility-sponsored programs in Virginia utilize the licensed, insured, and credentialed weatherization provider network to provide weatherization and energy efficiency services at no cost to the participants. These programs offer a means of receiving energy burden-reducing services without saddling the participants with any financial liabilities. These programs are delivered by mission-driven non-profit weatherization providers with strict training and licensing requirements, material specifications, and standard work specifications defined through the federal weatherization program. These criteria have also been adopted by the utility-sponsored weatherization programs.
Additionally, the Pay-As-You-Save (PAYS) on-bill tariff model being piloted by Rappahannock Electric Coop is much better suited for income-qualifying households and has a far better track record than R-PACE across the country in the limited rollout it has seen over the past few years. The PAYS model has some of the benefits of R-PACE but avoids the hazards of massive property tax bills for households already under-resourced. I’m cautiously optimistic about PAYS in Virginia and hope it pans out but this may still result in income-qualifying customers assuming debt unnecessarily when they may be better served through federally funded and utility-sponsored programs at no cost.
In my professional opinion, R-PACE would likely result in more harm than good for the intended beneficiaries of the services and it is attempting to fill a gap that is already filled by programs with less risk to participants. I would encourage decision-makers to avoid introducing R-PACE to Virginia.
R-PACE is a proven strategy with $800 million in investments already made through loans secured by the future real estate taxes on the homes who participate. The community still gets the tax income but homeowner get upfront money to finance energy efficience upgrades or renewable energy investments for the home. The administration of the program has costs of course, but the benefits to housing value, homeowners' wll being and to shifting to renewable energy far outweigh those according to those who have implemented the program.
I urge you to approve Virginia implementing this innovative and proven program.
Thank you for doing your part in our common struggle for human advancement and progress. Your adoption of solar energy and advocacy for clean air and water are commendable. G-d bless you all.
Imam Bilal Yasin El-Amin
The Propagation Congregation
Richmond, Virginia 23220
http://www.thepropagationcongregation.org/about
POWUR Solar PBC
http://www.powur.com/bilalyasin.elamin
This program sounds like a great idea! If implemented correctly, it could be a "win" for everyone involved.
There are no alternatives to R-PACE. For the simple reason that there are no other programs that can provide a long-term financial arrangement that does not subject both the lender and the beneficiary to real estate market valuation risk. The mistake made by nearly everyone interpreting PACE is assuming PACE is a loan and that a HELOC or other loan can be found at a lower interest rate and therefore these other existing loan tools are right for the job. They are not. That’s why their exclusive application is failing us miserably. That’s also why, when R-PACE is allowed, its growth in CA reflected an almost 80% year over year rate of growth among homeowners.
If a Virginia homeowner would like to be environmentally conscientious and responsible an invest in reducing their carbon footprint the best path is most likely insulation, a geothermal HVAC system and if the solar exposure works, a solar PV system. There can be other components of course. But, insulation can reduce the AC tonnage requirement substantially. A high performance home may require only 1 ton per 2,500 sf and in an older home 1 ton may only cover 500 sf. The power requirements obviously differ as substantially. A good system per current code requirements may be a 15 SEER system. Geothermal HVAC can be at an equivalent of 45 SEER. So it uses 1/3 the electricity. It can eliminate the need for a furnace. It can eliminate fossil fuel consumption for heat and hot water as it can supply hot water. Typical calculations show a carbon footprint reduction of 75%. There is no outside compressor noise. What’s more it does not lose efficiency when the air temperature gets really hot. (The ground is still around 60º F.) The combination of better insulation and geothermal HVAC can cut the number of solar panels by about half making solar more affordable and possibly creating a net zero home.
All of this would cost from $25,000 to $60,000 for average homes ranging from Jonesville to Ashburn. If they had that kind of cash, most homeowners would probably rather use it for a new car or a great vacation or other home improvements. With an R-PACE program you can do both!
So, if the position that “the existing tools work” had any merit I could happily agree. However, this has proven to be a red herring argument at best.
We face a huge problem in fighting global warming. My three grandchildren, and yours deserve our best efforts to leave them a planet in the same condition or better than the one we inherited.
Nationally, White House goals for carbon reduction are for 50% of 2005 levels by 2030. Virginia’s goals are for a zero carbon economy by 2045. The questions remain: What do we do to accomplish this? How do we pay for it? We could continue with the indirect carbon taxes that create stricter regulations on power plants, subsidies for cheaper efficiencies such as LED bulbs, we can pay Solar RECS and add to our power bills with Renewable Portfolio Standards instead of carbon credits, (after all if we use no electricity we don’t even need solar panels).
I would instead propose we use R-PACE to fund the changes we need and want.
Why is PACE (Property Assessed Clean Energy) capital not a loan?
Because PACE is a special assessment. (Investopedia) "A special assessment tax is a surtax levied on property owners to pay for specific local infrastructure projects such as the construction or maintenance of roads or sewer lines. The tax is charged only to the owners of property in the neighborhood that will benefit from the project. That neighborhood is called the special assessment district"
PACE is a surtax.
It is not a loan. It is not borrowing. It is not your money.
It is a neighborhood of 1 property: YOURS!
It pays for specific infrastructure benefitting the larger community environmentally. The infrastructure is chosen by you.
An excerpt from the recent artical on the state's first successful C_PACE transaction in Arlington:
Joe Marhamati of Ipsun Solar said that while C-PACE was created with the best of intentions, it’s in need of some streamlining. “I’m not super surprised it hasn’t taken off because administratively it’s very cumbersome,” he said. “It’s kind of like going to the DMV to get your loan.”
We need to avoid this in any program.
One of the biggest differnces I see in R-PACE verses C-PACE financing is lender consent is required in C-PACE. Perhaps what is required is to treat them the same.
Since FHA lenders Perhaps
This regulation would assist the majority of Virginians when it comes to paying their electric bills. It would also create a process for paying a bill in times of emergency.
Currently, the average electricity bill is unaffordable for more than 75% of Virginia households. As a person of faith & conscience, I believe working families should not have to spend such high percentages of their income to afford essential energy. The Residential Property Assessed Clean Energy (R-PACE) program can help alleviate the energy burden many families are experiencing by providing the mechanism and funding to implement clean energy improvements to their homes. The feasibility study on establishing this program needs to center equity and environmental justice to help communities of color and low-income communities experiencing energy burden.
PACE and Solar in VA
The average Virginian spends a little more than $2,000 a month on energy. What can be accomplished with $2,000 a month to make the home environmentally sustainable instead of spending it at the gas and electric companies?
Is it solar? Suppose 10 kW of solar is added to your roof. 10 kW in the 23120 zip code provides 13,915 kWh per year on average. At 0.11 cents/kWh, which is the current consumer rate, (at present, a 10% increase is expected soon, also it increases slightly every year) the system generates $1,536 dollars in electricity per year. Current tax Incentives have a big impact on solar economics. https://pvwatts.nrel.gov/pvwatts.php
Assume each kW costs $2,400 installed. If this is paid for in a PACE special assessment over twenty-five years, (some panels are guaranteed for 30 years) the payment at 5.39% is $2,047.73 (This also covers adding $5,523 in PACE overhead and accounting for the benefit of the 26% federal tax credit.) By Including the Federal Tax Credit of 26% (this year and next) using a PACE program and finding 25-year PACE financing, any consumer can actually be paid to allow the PACE program to buy the solar panels. Including homes covered by almost all FHA loans, but that’s another story.
Bottom Lines: The home value increases by adding solar panels, The consumer has no debt on his finances. There is a property assessment. The owner spends nothing out of pocket. AND the assessment is not required to be paid off by the program if the owner sells the property. The panels stay and so does the PACE assessment. This is another aspect of PACE that makes it very special. The property owner’s cash flow is improved by an average of $230 dollars per year in years 3-25, more after that. That’s not much but this indicates even solar panels in VA can improve the primary mortgage holder’s debt coverage ratio while simultaneously increasing asset value.
It’s also smart for a homeowner and the mortgage lender to replace a constantly rising variable cost with a fixed annual payment.
The mortgage industry is decidedly reluctant to accept PACE loans and either erroneously or mistakenly insists that a PACE loan is superior to a mortgage when in fact it is not. ONLY PACE payments IN ARREARS are. FHA had issued a statement saying PACE loans were compatible with FHA mortgages at one point and then reversed itself early in the previous administration.
Solar is the worst performing energy investment, but the idea here is: Can we can make even this change financially beneficial without government spending and further subsidy? The answer is "Yes we can!" This is a conservative and business responsible solution to climate change and energy conservation that will provide local jobs and economic stimulus. It can be utilized throughout the state if enabled.
This is only a first round illustration. It is far more important to get the best answers for each home on a case by case basis. The “reduce before your produce” mantra is key. If you can reduce a home to zero energy, solar panels are unnecessary. Reducing the electrical energy needed by using better weather sealing, insulation, duct sealing, energy controls, LED’s, skylights and geothermal HVAC can all provide better carbon footprint reductions at lower costs and provide better financial returns. The point that needs to be made is where will the capital come from? Pick up the PACE!
Note to Mortgage lenders and the MBA: The preceding evidence a Virginia solar PACE transaction makes it smarter to grant and or approve a PACE loan by all mortgage lenders. With a mortgage investment and a PACE investment by the same mortgage lender being especially beneficial as overhead can be minimized. Repayment is not guaranteed on the primary mortgsge. Repayment is almost guaranteed on the PACE assessment. On the PACE portion, the lender’s capital has no little to no market risk. While subjecting the same amount in a new bigger mortgage increases the lenders market risk.. As in 2008 a 60% decrease in market valuation is a possibiity. However, the assessment value would be undiminished.
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R-PACE and Underserved Communities
Adolphus Pruitt, President of the NAACP's St. Louis Chapter, published a compelling op-ed on why PACE financing is so important to historically underserved communities. At any rate the benefit of R-PACE from someone other than me should encourage everyone to pursue this much needed solution. At first, just for non-FHA properties in VA, then....
By Adolphus M. Pruitt II Mar 20, 2021
Attention to equity and inclusion for underserved communities of color is more pronounced today than ever. In recent reporting by Peabody Award-winning journalist Aaron Glantz, some stark statistics show that discriminatory lending practices still persist.
For those in the African American community, this comes as no surprise. But readers may be surprised to learn that, shockingly, the gap between African American home ownership and white home ownership is wider today than in the Jim Crow era. In fact, systemic racial biases are essentially built-in to credit score algorithms and underwriting resulting in a continuing access-to-capital crisis for underserved communities.
Communities of color are disproportionately denied for lending products such as second mortgages or home equity lines of credit because credit scores include latent discriminatory filters. Further, interest rates are higher for borrowers with lower credit scores; and if credit scoring has biases against communities of color, then the unwarranted higher cost of capital acts as a redline tax. Black families pay more because of systemic biases in traditional lending.
Today, what is needed are new approaches to finance that are not weighed down by past systemic inequities and redlining. One St. Louis program, Set the Pace St. Louis, is trailblazing a new financial tool providing relief and much-needed capital for our underserved neighborhoods.
Home ownership and the capacity to invest in and maintain a family’s biggest asset — their home — is a critical part of wealth development for communities. The city’s Property Assessed Clean Energy program, known as PACE, is meeting this need by providing financing for vital energy and maintenance repairs and improvements. The program covers 100% of the costs for new heating and cooling systems, roofing, windows and doors, and other energy improvements — part of hundreds of projects that have been completed in north city.
In fact, what is noteworthy about the PACE financing tool is that the terms and rates are the same for everybody — no matter what ZIP code residents live in. This stands in stark contrast to traditional lending models that often fall short of meeting the capital needs of our communities.
Set the Pace St. Louis is also ensuring the program’s economic opportunities are available for local minority- and women-owned contractor companies. For the last four years, program administrator Ygrene Energy Fund has conducted numerous training sessions and pre-apprenticeship workshops in partnership with Mokan, our region’s leading minority- and women-owned contractor assistance center. In 2017, Mokan recognized Ygrene Energy Fund with a Community Partnership Award for the administrator’s commitment to equity and inclusion.
Where traditional lending institutions and mortgage banks have been shown to lend disproportionately to whites and not to Blacks, the Pace program has helped address the access-to-capital problem by providing financing for African American families for critical home improvement and maintenance needs.
Set the Pace St. Louis shows promise as a forerunner of a revolution in finance. With rates and terms the same for all program participants, this simple fact makes Pace more equitable than other financing solutions.
Currently, the average electricity bill is unaffordable for over 75% of Virginia households. As a person of faith & conscience, I believe working families should not have to spend such high percentages of their income to afford essential energy. The Residential Property Assessed Clean Energy (R-PACE) program can help alleviate the energy burden many families are experiencing by providing the mechanism and funding to implement clean energy improvements to their homes. The feasibility study on establishing this program needs to center equity and environental justice to help communities of color and low-income communities experiencing energy burden.
I support a feasibility study on a Residential Property Assessed Clean Energy (R-PACE) program in Virginia.
R-PACE Market Interest, Size, and Potential Volume for a Virginia R-PACE Program
Market Interest
A simple analysis of PACE growth in California from 2009 -2015 tells you the market interest is substantial once awakened and has clearly demonstrated explosive exponential growth. The conclusion illustrated is: PACE is a truly effective energy transformation catalyst! Will it enable a smart transition to conservation and renewable energy? The resounding answer is: YES!
R-PACE will be a program that would benefit 100% of all homeowners in Virginia, all the time. It does not add any burden to the taxpayers or the public coffers. Such a program will attract business by keeping energy costs low because it will reduce demand, and it will, add to our energy independence, improve our air quality and help develop jobs in our local communities. Yes, R-PACE can do all that.
By all reports, solar PV is a fast-growing industry. Indexing the national dollar investment for 2009 solar PV installs at 1.00 and establishing solar growth from this starting point to 2015, the index in 2015 stands at 5.5. That is an astounding growth rate of 39% per year. I’m sure we agree that more growth occurs in states with better incentives. Virginia has almost none. Loudoun County is teh ne exception I am aware of.
Establishing a 1.00 index for all C(ommercial)-PACE program investment in 2009 and across the same period C-PACE investments have grown and yield a current index of 10.84. In other words, twice the growth rate of solar. The R(esidential) PACE index is at 30.58. This means the growth in investment in energy conservation and renewable energy for homeowners is growing at 76.5% per year with an R-PACE program in place.
Graph is omitted.
Notes 1. Solar and Geothermal data is national,
2. C-PACE is almost national while R-PACE data is primarily from certain parts of California. R-PACE is also offered in Missouri and Florida.
3. C-PACE has a split incentive issue in owner tenant properties.
Market Size and Potential Volume
To date PACE Nation R-PACE Data Shows:
In VA our needs in the resiliency area are for storm water measures, coastal property protection, conservation easements, and soon hurricane measures as storms are increasing in both severity and frequency.
Florida already includes hurricane resistance as resiliency and California includes seismic resiliency measures.
I have frequently prepared Market Size and Potential for Loudoun County testimony at Board of Supervisor hearings over the 10 years effort to get C-PACE going and asking for implementation assistance with R-PACE.
Loudoun County has more than 100,000 SF homes.
AC systems have a 15-year average life. Every year 1/15th or 6,700 need replacement.
If all 100,000 were all replaced at once (obsolete freon) the need could be estimated as follows:
100,000 homes at 5 tons /average system 5 Tons GT or conventional AC $12,000
5 Tons GT Loops @ $3,500/T $17,500
Solar: 25% not shaded and good orientation 7 kW @ $2,500 /kW X 25% $4,375
Misc Insulation, Duct Sealing, SunTubes, Controls, $8,000
Total $41,875
Market Potential 100,000 X $41,875 = $4,187,500,000 or $4.2 billion for Loudoun County alone. Excluding about 10 % in PACE program overhead.
This could be developed in aggregate from VA county data for average house size and adjusted based on energy calculations from Water Furnace and PV Watts output. As
geothermal and solar both share a 26% Federal Tax Credit for 2021 and 2022 dropping to 22% in 2023. Time is of the essence.
Statewide R-PACE investment need can be grossly estimated based on population ratio as follows:
Loudoun 2019 Population: 413,538; Virginia 2019 Population 8,536,000
Ratio 1:20.6
R-PACE VA INVESTMENT NEED 20.6 X $4.2 Billion or $86.5 Billion, just for R-PACE.
Why Geothermal HVAC needs R-PACE
(and we do too!)
Geothermal eliminates fossil fuel combustion for heating and hot water as illustrated in the typical graph on the right. Omitted Graph shows a 75% reduction in tons of carbon. It relly needs PACE because clients resist the added capital for geothermal drilling. Adding $18,000 to a 5 Ton HVAC system replacemet is not on the consumer wishlist. Yet it is the system with the best outcome for reducing GHG tonnage, i.e. eliminating the use of fossil fuels for heating and hot water.
In addition, geothermal systrems:
1. Reduce overall consumption with SEER equivalent ratings of 43.5 (Waterfurnace and 45.5 (Climate Master) versus code at 14 SEER which is becoming almost dysfunctional at today’s higher outside (globally warming) temperatures.
2. Shaves summer peaks for power producers
3. Adds to wintertime load at the power plant
4 Is absolutely quiet outside
R-PACE can allow power companies to lead the way on this conversion. The utilities need no capital for PACE “incentives”. They can simply provide a path for PACE financings.
Glad this topic is getting attention. My husband and I would really like to install solar panels on our home, but it's still financially out of reach. I am aghast seeing so many apartment complexes going up around town with no panels. Hurricane Ida puts a spotlight on our vulnerability and dependence on gasoline for generators. This is going too far. Help!