US PACE Programs - What You Need to Know

Property Assessed Clean Energy (PACE) Financing

Key Details

• Property Assessed Clean Energy Programs (PACE) are energy loans for renewable and efficient energy.
• Eligibility is determined by ownership of a private building, tax record, debt payments and other factors.
• Loans are secured by the property, and repayment is done through a property assessment.
• US states might offer R-PACE, Residential Property Assessed Clean Energy program, and/or C-PACE financing, Commercial Property Assessed Clean Energy program.

Property Assessed Clean Energy (PACE) programs offer a possible solution for promoting clean energy and reducing greenhouse gas emissions. They provide a means for property owners to fund clean energy upgrades that they might otherwise not be able to afford.

According to the US Department of Energy, more than 200,000 homes have received PACE financing totaling $5 billion as of 2019. Within the same period, the programs financed commercial projects valued at $2 billion.

The following are important details about the program and how you can take advantage of it when switching to solar in the US.

What are Property Assessed Clean Energy (PACE) Programs?

The U.S Property Assessed Clean Energy (PACE) program is a form of energy loan operated by state and local governments in the United States. The program aims to ensure the affordability of renewable and efficient energy by providing the required financing to property owners.

Different versions of PACE depend on the type of structure involved. R-PACE financing applies to residential buildings, while C-PACE financing only covers commercial buildings.

Loans are usually provided by PACE lenders, which typically include banks and institutions approved by the PACE administrators. The property owner repays it within a specific period through a property assessment included in the property tax.

PACE loans are secured by the property, and default in repayment has the same effect as failure to pay a tax bill.

Why Choose PACE Financing for Energy Upgrades

There are several advantages of opting for PACE solar financing in the US. Firstly, the loan covers every aspect of your solar project. So you do not have to make any out-of-pocket payments.

Secondly, PACE loans can provide lower interest rates and more favorable terms compared to traditional loans.

Thirdly, the property owner’s credit score does not affect access to the program. Instead, qualification is determined by how punctual you are with paying taxes and property debts. Also, the repayment period is long and can extend between 15 and 20 years. This ensures that the repayment load is spread thin per year.

Is PACE Financing for Me?

While Property Assessed Clean Energy (PACE) programs offer benefits, such as financing options for energy efficiency and renewable energy upgrades, there are also some potential cons to consider before taking a PACE energy loan:

A PACE loan creates a superior lien that takes priority over other property liabilities, such as mortgage debts. This has several implications for the property.

Lenders are sometimes reluctant to finance homes with PACE liens, as it may become difficult to sell the property even though the energy improvements have increased the property's value,.

Property owners also need to understand the loan structure to avoid missing a payment and losing their homes.

PACE in the US

As of 2023, 38 states in the US have PACE-enabling legislations, and residents can access active PACE solar financing programs in 30, including the DC.

Who is Eligible for PACE Financing?

Although the finer details of PACE may vary from jurisdiction to jurisdiction, here are some of the common eligibility requirements for PACE loan applicants.

• The applicant must own the eligible building. PACE is only available to property owners.
• The applicant’s title to the property to be improved must be clear and uncontested. Also, the property owner must have a good history of property tax and debt payments.
• The applicant must not have been bankrupted within the past five years.

What Kinds of Properties are Eligible for PACE financing?

Both commercial and residential buildings are eligible for PACE financing. Properties eligible for PACE financing must be within a jurisdiction with an active PACE program. The relevant local government will administer the program directly or through a company and process the loan. An eligible property must also be privately owned.

Furthermore, the property must be free from tax lien and unpaid property taxes. Some requirements relate to the value of the improvement and its effect on the property.

Consequently, a property may not be eligible for PACE solar financing if the value of the savings from the energy improvement within the loan period is less than the total PACE assessment. Likewise, the project must extend beyond the financing period.

Is PACE Financing a Free Government Program?

No, PACE financing is not a free government program. It is a loan that has to be repaid. Property owners that secure PACE financing pay back through a property assessment in their property tax. This results in a higher property tax within the period that the individual or business remains the property owner.

Property assessment payments are made once or twice a year, which may be higher than a monthly payment. The loan is secured by the property, and failure to meet assessment obligations can result in a tax lien on the property.

What is R-PACE?

R-PACE is the short form for Residential Property Assessed Clean Energy program. The program focuses on assisting households in securing financing to switch to renewable energy. Over 200,000 homes have benefited from over R-PACE financing programs in the US.

Though the requirements vary from place to place, the program applies only to single-family homes owned by private persons eligible to pay property taxes. As of 2023, California, Florida, and Missouri are the only states that offer R-PACE financing in the US.

What is C-PACE?

C-PACE stands for Commercial Property Assessed Clean Energy program. The program offers financing for energy-efficient improvements in commercial structures such as multifamily, public, and agricultural structures.

Property owners with a good tax record and property debt payments can get C-PACE financing. Also, the property in question must be privately owned.

Depending on the state’s PACE legislation, the financing may also apply to a qualified project after its completion. As of 2023, C-PACE financing is active in 31 US states.

How to Apply for a PACE LOAN

Each PACE program has its registration procedures in line with its enabling law and rules provided by its administrators. But the following processes usually underline many programs.

• Contact your local authority or PACE administrator to know available PACE programs.
• Contact a contractor that will carry out the energy improvement on your property. The contractor would determine the cost of the improvement and its benefit to the property.
• Get a PACE solar lender’s consent and apply for relevant permits for your project.
• Get mortgagee consent if there is an existing mortgage lien on the property. Some programs usually provide a template for this consent.
• Compile your documentation for your application. You would typically be required to provide a title report, including the property’s value, engineering report, mortgage details, insurance documents, and construction contract.
• Finally, submit your application to the PACE administrator and await your project and financing approval.
• Following approval, the financing terms will be agreed upon, and the full value of the project can be provided to the applicant.

What are the Costs and Risks Associated with PACE Financing?

PACE loans cover every aspect of your solar system, including equipment cost, installation, labor, and soft costs like legal and administrative fees. Major factors that determine a project's total cost include the system's size, the type and quality of panels, available solar incentives, and the installation company.

Despite the peculiar structure of PACE programs, certain risks are associated with them. Notably, unscrupulous contractors may make some misrepresentations that make property owners enter an arrangement that is not affordable.

Those unable to keep up with the property assessment risk losing their property under a tax foreclosure.

Also, getting recourse may become difficult when you are unsatisfied with the contractor’s work. This is because the program administrator would have paid the contractor fully right at the beginning of the project.

Furthermore, properties with PACE loans may get difficult to sell or refinance. Depending on the circumstances, Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Department of Veterans Affairs may oppose financing or purchasing mortgages for properties with a PACE lien. Private lenders are already taking a similar position.

Below is the cost of solar in states that offer PACE solar loans.

How do I Avoid Risks with PACE loans?

Property owners can avoid risks with PACE loans by doing their due diligence. A good step is to ensure that you hire a trusted contractor. Some states require solar companies and installers to have some sort of license. It is essential to ensure that your contractor is licensed in such states.

If your state does not have such a provision, ensure that you check reviews and seek references for anyone you hire.

Furthermore, ensure that you understand the terms of your loan contract. Property owners who do not understand their contract are likely to opt for a program they cannot afford. Get an attorney to review the contract for you. This way, you are sure of what you are getting into and whether you can keep up with it.

Can You Sell a House With a PACE Loan

Yes, nothing legally prevents the sale of a property that has a PACE solar loan. The program allows the loan to be transferred to the new owner because the loan is attached to the property, not the applicant.

But there has to be a disclosure of the loan to the buyer, as it's going to affect the buyer’s property tax. The only issue with the sale of properties with PACE loans is that lenders are increasingly reluctant to finance such transactions. As such, they may require a seller to pay off the balance of the loan.

Can You Pay Off a PACE Loan Early?

Yes, PACE solar loan recipients can pay off their loans early. Early loan payment discharges the property owner from further assessment and repayment. But it is essential to review your loan documents to confirm whether there is a prepayment penalty. This penalty is an additional fee if you decide to pay off your PACE loan early.