Municipal Energy Financing (PACE)
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1) Municipal energy financing, also known as Property Assessed Clean Energy (PACE) programs, allow homeowners to finance energy improvements through assessments on their property tax bills. 2) PACE programs have faced objections from Fannie Mae and Freddie Mac due to the senior lien status of PACE assessments. 3) Solutions to overcome the objections have included lawsuits against Fannie Mae and Freddie Mac, legislation to require them to accept PACE loans, and alternatives like on-bill financing or junior lien structures.
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Municipal Energy Financing (PACE)
- 1. Municipal Energy Financing a.k.a. Property Assessed Clean Energy (PACE) John Farrell Institute for Local Self-Reliance Presentation to the Southwest Renewable Energy Conference (SWREC) Santa Fe| September 14, 2010
- 2. New Rules Project @ ILSR • Public Broadband • Local Banking • Independent Retail • Community Energy www.muninetworks.org Energy Self-Reliant States @ Inst. For Local Self-Reliance
- 3. Municipal Energy Financing • Overview • Rationale • Potential • Issues Municipal Energy Financing: Lessons Learned http://bit.ly/munienergyfinance Municipal Energy Financing @ SWREC
- 4. Overview Sells bonds Installs energy efficiency improvements and on- site renewable energy Pays for property improvements Pays with long-term property tax assessment Assesses property for cost plus interest Municipal Energy Financing @ SWREC
- 5. Rationale: Financing Mismatch Average time in one residence: 5-6 years 5-6 years Finance terms: 10-15 years 5-6 years Municipal Energy Financing @ SWREC
- 6. Solution: Property Tied Financing Long-term financing stays with property 5-6 years 5-6 years 10-15 years Municipal Energy Financing @ SWREC
- 7. Rationale: Information Disjointed State Utility rebate rebate Utility audit Energy Nonprofit Star rating energy guide Federal tax credit Municipal Energy Financing @ SWREC
- 8. Solution: One-stop Shop Utility State PACE program Federal Nonprofit Municipal Energy Financing @ SWREC
- 9. PACE Process Information Energy PACE program advertised Sign-up sessions audits Municipal Energy Financing @ SWREC
- 10. PACE Process Retrofit y Retrofit Owner pays assessment, completed, s contract enjoys energy savings City pays Municipal Energy Financing @ SWREC
- 11. PACE Status • 22 states • 4 established municipal programs – Almost $40 million spent – 2,000 properties served Legend Recently enacted PACE laws Pre-2009 statutes supporting PACE Municipal Energy Financing @ SWREC
- 12. PACE Status Spending in 2009 PACE Programs $40 Utility Energy Efficiency Programs $3,600 $0 $1,000 $2,000 $3,000 $4,000 Millions Municipal Energy Financing @ SWREC
- 13. PACE Potential Future Spending? PACE Programs 2010 $300 PACE Programs 2011 $600 Utility Energy Efficiency Programs $3,600 $0 $1,000 $2,000 $3,000 $4,000 Millions Municipal Energy Financing @ SWREC
- 14. Issue: Fannie Mae Objects Lender Letter LL-2010-06 May 5, 2010 TO: All Fannie Mae Single-Family Sellers and Servicers Property Assessed Clean Energy Loans PACE loans generally have automatic first lien priority over previously recorded mortgages. The terms of the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that have senior lien status to a mortgage. As PACE programs progress through the experimental phase and beyond, Fannie Mae will issue additional guidance to lenders as may be needed from time to time. Lender letter: http://tinyurl.com/3y2g4mw
- 15. Issue: Fannie Mae Objects Lender Letter LL-2010-06 May 5, 2010 TO: All Fannie Mae Single-Family Sellers and Servicers Property Assessed Clean Energy Loans 1. We don’t come second. 2. This isn’t a public good. 3. “We’re buried in a subprime mess. Nothing new, please.” Municipal Energy Financing @ SWREC
- 16. Solution #1: Lawsuits • FHFA, Fannie, & Freddie sued by: – California Attorney General – Sierra Club – Sonoma County, CA – Town of Babylon, NY Municipal Energy Financing @ SWREC
- 17. Solution #2: Legislation • The PACE Assessment Protection Act of 2010 – Fannie Mae and Freddie Mac must revise their lending standards to conform with Department of Energy PACE Guidelines from May 2010. – FHFA, Fannie, and Freddie may not discriminate against any borrower in a community with a PACE program. Municipal Energy Financing @ SWREC
- 18. Solution #3: Alternatives • On-bill financing – Utility finances improvements – Utility ties billing to the meter instead of individual – “Pay As You Save” (now defunct) • Drawbacks – Requires utility participation – Utility billing system may need upgrade Municipal Energy Financing @ SWREC
- 19. Solution #3: Alternatives • Junior liens (e.g. Maine) – Does not come before mortgage in event of default – Still tied to property tax bill • Drawbacks – No secondary market – Can’t transfer between owners? Municipal Energy Financing @ SWREC
- 20. Solution #3: Alternatives • Subsidized home retrofits – E.g. weatherization • Drawbacks – Who pays for subsidy? Municipal Energy Financing @ SWREC
- 21. Solution #3: Alternatives • Loan loss reserves – Can insulate lender • Drawbacks – Who pays for reserve? • DOE webinar on Monday – http://tinyurl.com/37wt6o9 Municipal Energy Financing @ SWREC
- 22. Solution #3: Alternatives • Loan insurance – Insulates lenders – Low cost • Drawbacks – Offered to FHFA, but rejected – No private market right now Municipal Energy Financing @ SWREC
- 23. Thank you! John Farrell • www.newrules.org • jfarrell@ilsr.org • http://twitter.com/johnffarrel l *New* Community Solar Power: Obstacles and Opportunities Municipal Energy Financing: Lessons Learned http://bit.ly/munienergyfinance