4 Reasons Why PACE Bonds Are a Good Opportunity to Finance Energy Efficiency Upgrades or Renewable Energy Projects
Property Assessed Clean Energy (PACE) Bonds are a financing tool used to finance energy efficiency upgrades or renewable energy projects in residential, commercial and industrial properties. Such projects might include increased insulation, sealing of air leaks, cool roofs and solar panels.
In a typical structure, a state, municipality or state/local agency would issue bonds and use the proceeds to provide loans to various individual homeowners and/or business owners. The property owner would use the proceeds of the loan to pay for the energy efficiency upgrade or the renewable energy project. In return, the property owner would agree to pay an additional payment on the property tax bill for the benefited property over a certain number of years (typically 15-20 years). (The additional payment on the property tax bill is supposed to be offset, at least partially, by the energy savings that will be realized by the property owner due to the financed improvements.) The bonds would be secured by a lien on the property until the end of the assessment period.
The Advantages of PACE Bonds:
- Elimination of the large, upfront cash expenditure incurred by the property owner for the improvements;
- Reduction of concern by the property owner regarding investment recovery for the improvements, since the payments are tied to the property and not to the property owner;
- Increase to the borrowing term, since the length of the PACE assessment term is usually longer than a typical loan to which a property owner would have access; and
- Increase in energy efficiency, renewable energy and overall positive environmental impact to the state or locality.
The Downsides to PACE financings include:
- Fees for the programs which are typically passed on to the property owners;
- Lack of requirements regarding assessment of affordability for property owners; and
- Potential difficulty of selling the property because of the lien of the bonds.
This blog was written by Francina Brinker at Miles & Stockbridge.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.