Nearly 30 states have passed legislation enabling commercial property assessed clean energy (PACE) programs. On June 12, Connecticut lawmakers voted to create the nation’s first statewide commercial PACE program. Governor Dannel P. Malloy signed the bill (PDF) into law on June 15.
In a recent interview, Kerry O’Neill, a senior advisor at the Clean Energy Finance Center (CEFC), a Connecticut-based non-profit policy shop, told me that PACE supporters in Connecticut had for several years wanted to pass a bill authorizing a program, but this year the timing was right.
“With a new governor who has put energy as a priority for the state, and a new Commissioner of Energy and Environmental Protection [Daniel C. Esty] also putting PACE as a priority, coming into this legislative session it was really all hands on deck to build a broad base of stakeholders who support this policy and enabling legislation,” she said.
PACE financing enables property owners to take out a loan, usually via city- or state-organized bonds, to pay for energy efficiency upgrades or onsite renewable energy. Loans are repaid, typically over 20 years, through an annual supplemental property tax assessment.
The commercial PACE program will be managed by the state’s Clean Energy Finance and Investment Authority (CEFIA), also known as the “green bank,” which will also have the authority to back PACE bonds. “CEFIA will aggregate the PACE transactions and work with financial institutions to invest in them, allowing commercial building owners to access capital at a lower interest rate,” O’Neill said in a statement.
“In a state like Connecticut,” O’Neill told me, “that’s important because we are a small state. We have 169 municipalities; we don’t have county government. Getting to scale would have been very difficult if we didn’t have the ability to aggregate at the state and local level.”
Getting the bankers on board
O’Neill said that the CEFC and other PACE supporters had proactively engaged the state’s bankers in discussions about PACE financing. (Lenders are notoriously slow to embrace new financing models.) The outreach worked. The PACE enabling legislation passed with the endorsement of the Connecticut Bankers Association.
“CEFIA and the Commissioner of Energy and Environmental Protection made it a priority to do outreach to the Banking Commissioner, the Bankers Association, and individual banks to make them part of the process – not just with this legislation, but a commitment to have them be involved in program design as well,” she added.
”There’s a degree of excitement out there with the bankers. It’s one of the newer products we’ve had in some time,” Tom Mongellow, Vice President and Treasurer of the Connecticut Bankers Association, said in a statement. “This was a great way to get green lending out on the street.”
The Connecticut example is one other states would be wise to study, said O’Neill. “I know a lot of other states have had trouble bringing the bankers along. The commitment to work with the bankers and understand their concerns, both in legislation and program design, was critical.”
Connecticut “bombarded” with inquiries
“As you might imagine, CEFIA is being bombarded by national financial players, local players, ESCOs [energy service companies], service providers, deal originators – you name it,” said O’Neill. The intense interest is easily explained: money, in the form of hard-to-come-by capital for project developers and steady work for energy service companies.
"The big hurdle in expanding the implementation of energy efficiency has not been in the technology, but in the financing," State Senator John Fonfara told the Hartford Business Journal. Fonfara correctly identified one of the major barriers to energy efficiency projects. As Dan Schaefer and Dennis Hunter of Ygrene Energy told me for a post I published in April on the launch of a commercial PACE program in greater Miami, billions of dollars of unfunded energy efficiency projects are waiting for financing nationwide.
“One of the next things for us to do is project out – year one, two, three – what kind of volume we expect” from Connecticut’s commercial PACE market, O’Neill said. “We are working with a consulting firm to characterize the market for us, looking at the commercial and industrial real estate market, property owners, concentration, and sub-sectors (offices, retail, hospitality, industrial) to give us a better sense of where the opportunities are.”
“The ESCOs in particular … are really excited about having that level of data available to look at the opportunities in the market,” she added.
O’Neill also noted that CEFIA has its own funding, a portion of which could be directed to the commercial PACE program, but that “working with outside capital markets will be a piece of the strategy.”
O’Neill said that she hopes the program launches later this year. “There’s quite a bit of work to do in terms of the MOUs with the municipalities, the program guidelines from the financial perspective and available technology,” she cautioned.
“The next several months will be spent solidifying program design, and how the program will be run, and looking at some of the models out there.”
