Home Energy Management PACE Pairs Energy Efficiency with Attainable Financing

PACE Pairs Energy Efficiency with Attainable Financing

1380
0
SHARE

SACRAMENTO, CALIF.—Commercial buildings in California account for nearly 40 percent of primary energy usage, much of which is wasted because of inefficiencies in older construction. According to the United States Department of Energy, commercial buildings could be made 80 percent more efficient with new and existing technology, but many property owners don’t fully appreciate the value proposition that retrofitting can bring to a business.

Increasing energy efficiency through green and clean energy retrofitting offers tremendous benefits to California businesses, including hotels. On average, hotels spend nearly $2,200 per available room each year on energy; long operating schedules make hotels an ideal candidate for energy efficiency.

Some improvements provide particularly high energy savings that translate directly to cost reductions. For example, heating and air-conditioning improvements can save substantial costs by controlling the temperature in guestrooms only when they are occupied. Upgrading insulation results in energy savings of up to 30 percent, while advances in lighting technology offer energy savings of up to 20 percent. Solar photovoltaic systems can reduce utility bills by up to 80 percent—which not only saves money, but allows a property owner to produce their own energy from a clean, sustainable source. Replacing an aging or leaky roof with a cool roof that reflects the sun’s heat is a long-term improvement that can last 20 or more years, and cool roofs save property owners money by reducing air-conditioning demands in warmer weather.

Investment in technologies such as heating and cooling, lighting, insulation and windows can produce more than cost savings, however. Energy efficient buildings—particularly those with LEED or Energy Star certification—generally maintain higher lease and occupancy rates, as these properties are viewed as more desirable. As we emerge from a multi-year real estate recession, the ability to increase property values, reduce vacancy rates and improve asset stability should help hotel property owners to rest easier that their investments are again positive and productive elements of their overall portfolios. Helping the environment too? Well, that’s just a bonus.

A Common Concern of Property Owners

One of the primary concerns of property owners considering improvements to their properties is that these types of major upgrades typically require significant up-front investment. While the improvements ultimately generate ample cost savings, those savings are distributed over time, while large up-front costs are still required to perform the upgrade.

Now, however, in an effort to find economical ways to cut expenses while conserving energy, financing solutions such as Property Assessed Clean Energy (PACE) programs are making it easier than ever for property owners to make energy efficiency upgrades by offering low risk, 100 percent project financing. With PACE, public entities in the state partner with commercial and residential property owners to finance energy efficiency, renewable energy and water conservation projects using low-interest loans that are repaid over periods of five to 20 years through the owner’s property taxes.

One of the most notable characteristics of PACE programs is that the loan is attached to the property rather than an individual. This provides two key benefits. First, if a building is sold or transferred, the PACE lien may remain tied to the property. Second, qualifying for a PACE loan is much less arduous than for conventional loans secured by the credit worthiness of an individual or business. In fact, personal or business credit ratings have no impact on funding eligibility or interest rates for PACE financing programs. It’s a win-win proposition all around, with no risk to the property owner.

PACE financing was introduced broadly in California in 2008, when Assembly Bill 811, authored by Assemblyman Lloyd Levine, was signed into law by then Governor Arnold Schwarzenegger. AB811 gave California cities and counties the authority to designate areas within which residential or commercial property owners could voluntarily enter into contractual assessments to finance the installation of energy efficiency improvements, so long as the improvements were permanently fixed to the property (energy efficient appliances do not qualify for PACE financing.) To date, PACE-enabling legislation has been passed in 30 states and the District of Columbia, however California continues to lead the nation in terms of PACE availability and participation.

Hotel Success Example

Utility savings generated through energy improvement upgrades on commercial properties are difficult to ignore. A recent example of such savings is a $650,000 project recently completed at the Plaza Hotel in Sacramento, Calif. This hotel was among the first PACE-funded projects for Clean Energy Sacramento, a privately funded clean energy financing model in the nation for both commercial and residential buildings. The project, which upgraded the building’s roof and heating and cooling systems, is projected to reduce costs by $70,000 per year for 25 years. An added advantage to the city: the projects funded by Clean Energy Sacramento are projected to create thousands of jobs, boost property values, and contribute substantially to Sacramento’s goal of reducing energy use 15 percent by 2020. PACE financing truly benefits everyone.

As a property owner, achieving a green energy retrofit on a property through a program such as PACE may be done in as few as five steps. First, an application will be checked for eligibility, which generally includes verifying that the owner has a minimum percentage of equity in the property (at least 15 percent), and that the owner is current on property taxes and mortgages and has been bankruptcy-free for at least three years. Utility cost savings must exceed the cost of the improvement over their useful life, and financing can’t exceed 10 percent of the fair value of the property. Once underwriting eligibility has been verified, the applicant will apply for funding. Upon approval, the applicant will select their own trusted contractor to make the selected property upgrades. To find a PACE financing program near you, visit www.pacenow.org.

PACE programs give property owners the opportunity to upgrade their properties with little to no out-of-pocket costs and offer 100 percent financing for dozens of qualified improvements, some of which may include high-efficiency toilets or even solar thermal systems for pool heating. By eliminating up-front costs, providing low-cost, long-term financing and making it easy for property owners to transfer repayment obligations to a new owner upon sale, PACE virtually eliminates the challenges that have often barred residential and commercial property owners from making energy efficient improvements in the past. It is, by far, the way of the future, and it starts right now.

John Kaufman is the Regional Director for Ygrene Energy Fund and is responsible for managing Ygrene’s Northern California operations, including clean energy district formation and all aspects of program development and program implementation. Prior to joining Ygrene, Kaufman co-owned and operated Kaufman & Company, Ltd., a real estate development, brokerage and asset management firm in Sacramento. He can be contacted at john.kaufman@ygrene.us.

LEAVE A REPLY