Read on for a discussion about commercial property-assessed clean energy (C-PACE) between Daniel Bresette, the Alliance to Save Energy’s Director of Government Relations, and Sandy Fazeli, National Association of State Energy Officials’ (NASEO)’s Senior Program Director. C-PACE is an innovative financing program that provides access to energy efficiency/renewable energy upgrades for commercial, industrial and multi-family property owners.

Daniel Bresette, Alliance to Save Energy: Sandy, first off, let me congratulate you and your colleagues at NASEO on a tremendous report, Accelerating the Commercial Pace Market: Statewide Programs and State Energy Office Participation in Property Assessed Clean Energy (PACE) Financing. The concepts of property-assessed clean energy (PACE) financing are very intuitive, but the details of program design and implementation are often quite tricky. Your report does a good job of making the case for commercial PACE (C-PACE) and outlining best-practices. What should readers of your report take away when thinking about developing C-PACE in their state or improving a program already in place? 

Sandy Fazeli, NASEO: Thanks so much for the kind words and the opportunity to share some findings from our study, Dan. The impetus for writing this report really came from NASEO’s members, the State and Territory Energy Offices, about two years ago. At the time, many were getting involved in policy and legislative discussions to help authorize C-PACE in their states. We at NASEO received questions about the State Energy Offices’ role—what recommendations should they put forth to their legislature? How can they help make sure that their C-PACE authorization translates into effective programs? How can they best connect with local governments to help catalyze the market?

And that’s really when we started taking a closer look at the various leverage points that state governments have at their disposal. Not only can they enact PACE-enabling legislation, but they can also provide public education, financial and technical resources, and program design and implementation support that can help ease the burden on municipalities to operate successful programs. One example is Connecticut’s statewide C-PACE program administered by the Connecticut Green Bank in partnership with private and local government partners, but there are twists on this concept all across the country. New York and Michigan, for instance, offer statewide programs that co-exist side-by-side with local programs. Texas and Virginia have developed voluntary program standards and guidelines to support local program implementation.

So, if there’s really one key takeaway from the report for the energy efficiency and financing community, it’s that a State Energy Office, Green Bank, or other state-level entity can be a great partner to help provide expertise and resources to make C-PACE happen. The first step is making contact to see where the best intervention points are.

DB: Your report outlines how states like Connecticut, Texas and Michigan are implementing C-PACE using different models. While there does not seem to be a “one-size-fits-all” approach to C-PACE, what do successful programs have in common? 

SF: You’re so right that there is no “one size fits all” approach to C-PACE. There are many variables and decisions that have an impact on program design and delivery, including state and local tax infrastructure, the types of projects and borrowers that are in need of C-PACE financing, and provisions and requirements (such as lender consent) that are included in states’ C-PACE statutes.

That being said, one cross-cutting factor that can help drive a program’s success is its ability to achieve economies of scale. C-PACE can be complex and expensive, and some local governments may lack the bandwidth and resources to take it on. A statewide program option can help remove this barrier by offering streamlined and shared program services across multiple jurisdictions and creating a more efficient flow of capital toward projects in need of financing. This is a key premise behind Lean and Green Michigan, a C-PACE program which is run by a private company and uses a “shared services” approach. Municipalities simply vote to participate in the program without needing to dedicate staff time or public funds to deals, which are sourced by the program and financed using private capital.

Statewide approaches can also help end-users. Many of the partners and companies that the Alliance engages, such as large commercial property owners, project implementers, lenders, and capital providers, might be more receptive to working with a statewide program, with a consistent set of practices and guidelines, than they would be with a patchwork of different programs fragmented across city and county boundaries.

DB: At the Alliance’s recent EE Global Forum, I moderated a panel discussion about energy efficiency policy advancements at the subnational level. I mentioned financing as a good example of how state and local governments have taken the lead and are paving the way with really innovative policies and programs such as C-PACE. Are there any federal policies currently being considered that would support or encourage C-PACE programs? 

SF: We’ve seen a strong leadership role from the federal government on C-PACE. The Department of Energy (DOE) Weatherization and Intergovernmental Programs office not only funded NASEO to write this report, but also has been a great source of information and advice to the State Energy Offices and PACE community at large. DOE also authored C-PACE guidelines in 2010 which still -- to this day -- are used and referenced by programs across the country, in addition to many informative resources and briefings on the topic.

Outside of DOE, the U.S. Department of Housing and Urban Development (HUD) has provided guidance on how to obtain consent to use PACE financing for HUD-assisted and HUD-insured multifamily properties, which has really helped unlock a new market segment for the PACE community. There has also been some policy action around residential PACE, with many states awaiting guidance from HUD’s Federal Housing Administration on the use of FHA financing on homes with PACE liens.

DB: Evolution of C-PACE over the past five years has been dramatic. Where do you see growth in C-PACE over the next five years? 

SF: I think some of the most exciting C-PACE stories to tell are in “untraditional” market segments, such as affordable housing, non-profit buildings (think houses of worships, shelters, and training centers), and in the grid modernization and resiliency arena. PACENation and its partners have done an incredible job of familiarizing both policy makers and market players with the mechanics behind C-PACE and showcasing how flexible a tool C-PACE can be. We now see programs in the District of Columbia and New York stretching the limits of C-PACE well beyond the for-profit commercial real estate community, and I’d bet we see more and more growth as new precedents are set and target markets reached.

DB: Thanks, Sandy. This has been very interesting. I know NASEO is very involved in financing issues beyond C-PACE. Can you give readers any hints of what might be coming along next? 

SF: We run a Financing Committee that convenes State Energy Office staff and our private-sector Affiliate members for discussions on a wide variety of topics, ranging from revolving loan funds to more sophisticated and complex financing and policy tools such as PACE, credit enhancement mechanisms, and public private partnerships. Some priority items on the Committee’s radar over the coming months include strategies to engage secondary market and institutional investors, ways states can better align with and tap into federal financing programs, and exploring the kinds of program and loan performance data that can attract greater amounts of private capital into energy markets. We always strive to keep our Committee members aware of opportunities to support and leverage financing, so it would be great to continue learning about innovations and tools from Alliance experts and Associates.