California first enabled PACE in 2007 with the passage of AB811, which amended the state’s existing laws to allow PACE financing for renewable energy and energy efficiency improvements to homes and businesses. In 2010, state legislators passed SB77, which set up the state’s Loan Loss Reserve Fund for residential PACE programs (see links to California’s PACE laws below). Residential and commercial PACE has flourished in the state since then, financing over $2 billion for clean energy improvements throughout the state. Currently, there are 12 active programs operating in California.
If you want to install a solar energy system on your property, one of the first questions you’ve probably asked is, “How will I pay for it?” There are many financing options available today for homeowners who want to enjoy the benefits of solar. In many areas, an increasingly popular option for home energy improvements like solar is property assessed clean energy (PACE) financing.
How Does Property Assessed Clean Energy Financing Work?
Property owners who aren’t able to or interested in buying solar panels in cash can finance their solar energy system with a solar loan or a solar lease or power purchase agreement. PACE financing is a special type of secured loan that is available in areas where the local government has allocated funds.
Here’s the general process for using PACE financing to install solar panels on your property:
- A county, local, or municipal government passes legislation that establishes a PACE program and makes funds available to investors, usually through the sale of municipal bonds.
- Property owners voluntarily sign up for financing and install energy efficient upgrades like installing Solar, Cool roofs, Windows, A/C.
- An authorized PACE lender (such as Hero Program) provides those funds to property owners who want to make clean energy improvements, like installing solar panels on their home or business.
- Property owners repay the financial institution through an assessment attached to their annual property tax bill.
If you are a residential or a commercial property owner, you can use PACE financing to pay for new heating and cooling systems, insulation, and other energy efficiency upgrades in addition to solar panels.
For property owners who don’t have good enough credit to access favorable loan options, PACE financing is a great alternative for receiving the financial benefits of solar with no upfront costs.
What Makes PACE Financing Different from Other Loans?
While PACE financing provides homeowners with funds to make upgrades to their home, it is different from other home improvement loans in a few important ways:
- Instead of repaying the loan in monthly installments, property owners pay the loan back once a year for a fixed term (10-20 years) through an assessment that is added to their property tax bill.
- When you install solar panels using PACE financing, you immediately begin to enjoy the financial benefits of your solar panels without having to pay anything upfront. Because the amount of money that you save in electricity costs throughout the year will be significantly greater than the annual increase in your property taxes, you will always benefit from the net gains of your solar investment.
- If you sell your property before your solar energy system is completely paid off, the rest of the money owed transfers to the new property owner. Unlike most other loans or leases where transfers are negotiated separately, PACE loans are attached to the property itself, not the owner – simplifying the transfer process. Plus, the new owners won’t mind, as they’ll immediately enjoy the financial benefits of solar panels on their new property!
- While funding amounts and interest rates for traditional loans are determined by your credit, PACE loan amounts are determined by the tax capacity of your property (i.e., how much your property is worth). For property owners who don’t have good enough credit to access favorable loan options, PACE financing is a great alternative for receiving the financial benefits of solar with no upfront costs.
Why is Now a Good Time to Explore PACE Financing for My Home?
PACE legislation already exists in some form in 29 states plus Washington D.C. and is about to become even more accessible to property owners. At the end of August 2015, the Obama Administration announced new actions that will remove barriers for residential PACE financing for single-family households.
While the Federal Housing Authority (FHA) initially warned investors against buying mortgages with PACE assessments attached to them the Administration’s recent actions show it’s changed its tune and is now encouraging more municipalities to pursue PACE financing legislation.
Find out if PACE financing options are available to you, and don’t forget to compare your financing options when considering solar power for your household. For more about PACE financing, visit the Department of Energy’s fact sheet about PACE programs.