HomeMy WebLinkAboutDepartment of Energy Lessons in Commercial PACE Leadership 02-01-2018-ALessons in Commercial PACE Leadership:
THE PATH FROM LEGISLATION TO LAUNCH
FEBRUARY 2018
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necessarily state or reflect those of the United States Government or any
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Ernest Orlando Lawrence Berkeley National Laboratory is an equal
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Copyright Notice
This manuscript has been authored by an author at Lawrence Berkeley
National Laboratory under Contract No. DE-AC02-05CH11231 with
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LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
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PREPARED FOR
Office of Weatherization and Intergovernmental Programs
U.S. Department of Energy
AUTHORS
Greg Leventis
Lisa Schwartz
Chris Kramer
Jeff Deason
Ernest Orlando Lawrence Berkeley National Laboratory
1 Cyclotron Road, MS 90R4000
Berkeley CA 94720-8136
February 2018
This work was supported by the U.S. Department of Energy, Office of Energy Efficiency
and Renewable Energy, Office of Weatherization and Intergovernmental Programs
under Lawrence Berkeley National Laboratory Contract No. DE-AC02-05CH11231.
ACKNOWLEDGEMENTS
The authors thank Eleni Pelican, Sean Williamson, Jenah Zweig, and Anna Garcia
of DOE WIP for their support of this work.
A Berkeley Lab Steering Committee provided guidance for this report:
Charlene Heydinger, Texas PACE Authority
Paul Scharfenberger, Colorado Energy Office
Shawna Cuan, Utah Governor’s Office of Energy Development
Daniel Farrell, Virginia Department of Mines, Minerals and Energy
Kevin Moyer, PACE Equity
James Hamill, California Statewide Communities Development Authority
Thanks to Sandy Fazeli, National Organization of State Energy Officials, for
helping to organize the Steering Committee. We would also like to thank Cliff
Kellogg, Greg Saunders and Josh Smith for their contributions. Contributions to
the report do not constitute endorsement of any specific practices or protocols.
For providing input, reviewing a draft of this report and providing comments the
authors thank George Caraghiaur, Craig Carlock, Sam Cramer, Shawna Cuan, Daniel
Farrell, Sandy Fazeli, James Hamill, Charlene Heydinger, Amy Hourigan, Peter Klein,
Brian McCarter, Kevin Moyer, Laura Nelson, PhD, Steve Schiller and Genevieve
Sherman.
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Contents
Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purpose and Audience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Decision Points Addressed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Stage 1: Enabling C-PACE Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.1 What should enabling legislation address? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2 What are the options for program administrative structure? . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.2.1 Implications of program structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.2.2 Program structure options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.2.3 Roles and standardization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.2.4 Local Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. Stage 2: Setup and Program Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 How can projects be capitalized and who can capitalize them? . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1.1 Funding mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.1.2 Capital provider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1.3 Funding process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.4 Credit enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.1.5 Interaction with existing incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2 What and who can qualify for the program? How can they be qualified?. . . . . . . . . . . . . . . . . . . . . 23
2.2.1 Qualifying properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2.2 Qualifying building owners and projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2.3 Qualifying measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.3 How are energy cost savings and other impacts estimated and documented? . . . . . . . . . . . . . . . . . 27
2.3.1 Energy audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.3.2 Savings-to-investment ratio (SIR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.3.3 Documenting energy savings and other impacts from C-PACE: Evaluation, Measurement and
Verification (M&V) of savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3. Stage 3: Program launch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.1 Which stakeholders are essential to engage? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.2 Ongoing operations and costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.2.1 Ongoing operations tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.2.2 Ongoing operations costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.2.3 Program set-up costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Works cited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Appendix A. How does it work? Project financing with C-PACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Appendix B. Program structure quick glance and options for local governments . . . . . . . . . . . . . . . . . . . . . 46
Appendix C. Links to resources specific C-PACE topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
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List of Figures
Figure ES-1. A simplified overview of the C-PACE process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Figure 1-1. C-PACE activity around the country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 1-2. The spectrum of existing C-PACE program structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Figure 2-1. C-PACE investment by building type . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
List of Tables
Table 1-1. C-PACE program administrative structures (adapted from NASEO 2016) . . . . . . . . . . . . . . . . . . . 13
Table 1-2. Benefits of standardization for different stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Table 2-1. Closed and open market C-PACE programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table 3-1. Examples of C-PACE program stakeholder engagement strategies . . . . . . . . . . . . . . . . . . . . . . 32
Table B-1: The role of state government and options for local governments under various
C-PACE programs structures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Table C-1: Additional C-PACE and related materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Table C-2: Selected program manuals and guides. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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Acronyms and Abbreviations
CLTV Combined loan-to-value ratio
C-PACE Commercial Property Assessed Clean Energy financing
CSCDA California Statewide Communities Development Authority
DMME Virginia Department of Mines, Minerals and Energy
DOE U.S. Department of Energy
DSCR Debt service coverage ratio
DSRF Debt service reserve fund
EPP Investor Confidence Project’s Energy Performance Protocols
ESCO Energy Service Company
EUL Effective useful life
IT Information technology
JPA Joint powers authority
LLR Loan loss reserve
M&V Measurement and verification
MAPA Mid-Atlantic PACE Alliance
MUSH Municipalities, Universities, Schools, and Hospitals
NASEO National Association of State Energy Officials
NOI Net operating income
OED Utah Governor’s Office of Energy Development
PACE Property Assessed Clean Energy financing
PV Photovoltaic (solar)
QA/QC Quality assurance, quality control
R-PACE Residential Property Assessed Clean Energy financing
SCEIP Sonoma County Energy Independence Program
SIR Savings-to-investment ratio
TRM Technical reference manual
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
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Glossary
1 Regardless of what entity is the program sponsor, the local government must be involved in the process.
2 Although rules are state specific, C-PACE liens are generally junior to property tax liens and pari passu with special assessment liens.
Enabling Legislation and Tax Mechanism
Assessment – Recording of a liability to the local government (i.e., payment obligation) in exchange for an
investment that benefits the property owner — in the case of C-PACE, a property improvement usually involving
energy enhancements. The assessment is secured by a lien on the property and obligates the property owner to
repay the investment in the improvement.
Capital Provider – The entity that provides capital to complete a PACE-financed project. State, local, or quasi-
public entities; financial institutions (e.g., banks and community development financial institutions); and specialty
PACE providers can be program capital providers.
Lien – A legal right to a property in the event of non-payment of an assessment or other obligation (e.g.,
mortgage). A taxing authority places the lien to secure a special assessment and may assign the lien to another
party.
Program Administrator – The entity responsible for PACE program implementation in concert with state and local
enabling legislation and program guidelines. This may be the same entity as the program sponsor, but day-to-day
program responsibilities are often fulfilled by a third-party program administrator.
Program Guidelines – The detailed operating rules and best practices of a program in compliance with state-
enabling legislation. Program guidelines may be established by a public entity (or entities), by a decision-making
body of public and private stakeholders, by a third-party Program Administrator, or through some combination of
the three.
Program Sponsor – The entity responsible for establishing a PACE program, which may be a state office or agency,
a local government, or a regional or quasi-public entity.1
Property Owner – The person or entity that holds title to an eligible property.
Senior Lien – Gives the lienholder first claim to repayment in the event of nonpayment or foreclosure. With a few
exceptions, PACE assessments are always senior to other non-tax, non-assessment liens.2
Special Assessment District – The physical area where assessments for PACE financing have been authorized.
The Special Assessment District may cover an entire state, a locality, or an individual property.
Standardization – The principle of aligning PACE program design features across geographic areas to achieve
consistency and economies of scale. Standardization may be achieved through the authority of state-enabling
legislation or through informal coordination of stakeholders.
State-Enabling Legislation – Legislation passed by a state legislature authorizing the use of commercial PACE in
the state. The legislation may be prescriptive in the program design parameters it sets out, or it may be silent on
many program design parameters.
Financing Terms
Bonding – Capital for projects comes from public entities via bond proceeds, as distinct from direct funding by
private capital providers. State, local, or quasi-public entities use their bonding authority to issue bonds and repay
bondholders with the repayments from the PACE assessments on participating properties.
Closed Market Financing – The program relies on a dedicated provider of capital to fund PACE assessments,
usually a dedicated third-party capital provider.
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Credit Enhancements – Tools that offer lenders protection against losses if a borrower defaults on its obligation
or is delinquent in payment. They serve the purpose of reducing risk to capital providers and improving terms of
financing (i.e., interest rate, duration of assessment). This is not a requirement of C-PACE programs and is not
particularly common in C-PACE.
Determination of Project Qualification – The process — often performed by a program administrator — of
reviewing project characteristics for the purpose of establishing adherence to program technical, financial and
quality assurance guidelines.
Direct Funding – Capital for projects is provided by private capital providers (as opposed to bond proceeds).
The capital provider’s investment in the C-PACE project is secured by a financing agreement, giving it the right to
receive repayments from the assessment on the property.
Financing Agreement – The written agreement between the property owner and the capital provider regarding
matters related to the extension and repayment of project financing.
Mortgage Holder Consent – The process of gaining the express written consent from the mortgage holder of
a property entering into PACE financing. In general, the mortgage holder is consenting to a more senior lien
(corresponding to the PACE-financed project) being placed ahead of their lien (corresponding to the mortgage they
hold). Also known as lender consent.
Non-Acceleration – In the event of a foreclosure or property sale, the full assessment amount is not due. If there
is a foreclosure, the owner is only obligated to pay the arrearages (i.e., late payments); the subsequent owner is
responsible for future remaining PACE assessment payments.
Non-Recourse – In the event of a foreclosure, the capital provider may require the local government to go to tax
sale with the property securing the C-PACE obligation. But if the value of the property is insufficient to make the
lender whole, the lender does not have recourse to any other assets of the property owner.3
Open Market Financing – Multiple capital providers participate to fund C-PACE projects. Some programs allow
capital providers to apply to become qualified to lend through the program. Programs may prequalify an approved
list of capital providers. Some programs allow property owners to arrange their own financing.
Pari passu – Different obligations are paid equally from a payment. For example, if a tax bill has a C-PACE charge
and another special assessment charge, for a $100 payment, $50 would go to the C-PACE charge and $50 to the
special assessment charge.
Secondary Market Transactions – Capital providers with the initial rights to future proceeds from PACE
assessments, also known as originators, may sell those rights (along with future proceeds) to another entity. This
allows the originator to re-capitalize, or bring in additional capital, to originate more C-PACE-financed projects.
Securitization is a type of secondary market transaction.
Underwriting – The process of due diligence whereby a capital provider, and in some cases the program
administrator, evaluates project characteristics (e.g., financials, energy savings, possibly including an evaluation
of the borrower) and makes a determination on whether the risk is acceptable. This term also may refer to the
process of due diligence whereby a program administrator evaluates property eligibility and project quality
assurance and makes a determination of project qualification.
3 In the same situation, a recourse loan gives the lender the right to seek compensation through other assets of the borrower if the value of the foreclosed property is not
sufficient to cover the borrower’s outstanding debt.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
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Purpose and Audience
The primary audience for this report, Lessons in
Commercial PACE Leadership, is state and local
decision makers that seek an informed, objective
perspective of what it takes to launch a C-PACE
program. The report is specifically for those states
with enabling legislation and program sponsors
(i.e., state or local governments) that are looking to
launch or join a C-PACE program.
The report is a starting point for understanding what approaches have worked to establish successful C-PACE
programs. It examines the experience of programs across the country and provides insights for making the
process smoother, and hopefully less cost and time-intensive, for new state and local governments sponsoring
C-PACE programs. The report also provides a roadmap to key decision points on the path to setting up a program
— the different paths taken and program models employed by those who have blazed the trail. The report is
organized into three sections describing the decision points involved, options and considerations, and experience
from the field:
Figure ES-1. A simplified overview of the C-PACE process
ASSESSMENT PAYMENTS
PAYMENT REMITTED UPFRONT CAPITAL
Property
Mortgage
Holder
Property Owner
ContractorSponsor or
Tax Authority
Capital Provider
SERVICES RENDERED
Consent
Places
assessment
and lien
Senior C-PACE lien
Lien
Energy
improvements
May
assign lien
Executive Summary
Property Assessed Clean Energy (PACE)
financing enables building owners to
finance energy efficiency, renewable
energy, and, in some states, non-energy
building improvements through a voluntary
special assessment on their properties. For
commercial buildings, there are many benefits
to using Commercial PACE (C-PACE) financing.
Still, using C-PACE financing is a multi-step
process and involves diverse stakeholders
(see Figure ES-1 for a simplified overview), and
the process may vary depending on the state
and policy context.
2 STAGE 2
Program setup 3 STAGE 3
Program launch1
STAGE 1
Enabling C-PACE
financing
2
Most existing resources on C-PACE focus on the basic value proposition of PACE financing or are based on
particular state or local government structures.4 This report focuses on the decisions that must be made between
the signing of C-PACE enabling legislation and program launch. The report also provides an update on the C-PACE
market, which has moved quickly in recent years as administrative structures, funding approaches and markets
evolve.
The structure of C-PACE as a special assessment can help overcome market barriers to the uptake of energy
efficiency, such as owners’ focus on short payback periods for efficiency projects (to maintain a positive cash
flow), owner-renter split incentives and the common need to use cash to pay for a portion of the project up
front. C-PACE’s structure allows for long financing terms (some programs allow up to 30 years) reducing monthly
payments and potentially resulting in a positive cash flow for the project. The special assessment structure
allows payment obligations to be passed through to tenants under some lease structures and 100% of project
costs can be financed. Since most PACE programs use private funding, it is possible to set up a PACE program
without any cost, or minimal cost, for the participating municipality (PACENation n.d.). C-PACE investment
can increase economic development, generate jobs, potentially increase a property’s value and net operating
income, and advance state and local energy goals.
To guide this report, Berkeley Lab recruited a Steering Committee largely comprised of program sponsors who
have recently gone through the process of establishing a C-PACE program. Committee members shared the
most important decisions they made during the set-up process and were interviewed about their experiences.
Berkeley Lab also interviewed other C-PACE stakeholders across the country and conducted a literature review.
Over time, decision makers have found that the advantages of some approaches outweigh those of others, and
newer programs have begun to rely on these more advantageous approaches. The report indicates where this
is the case. The different models and approaches for C-PACE programs described in the report are presented
as examples of different decisions C-PACE program sponsors have made, rather than as recommendations.
Readers can review the implications of the various approaches and how they may or may not fit with a program
sponsor’s specific needs.
Decision Points Addressed
Leaders in Commercial PACE have shown different paths can be taken to launch a successful C-PACE program.
Following lessons learned from these leaders, captured in this report, state and local governments can
efficiently navigate the multiple decision points of setting up a C-PACE program. These decisions include:
What should enabling legislation address? (Section 1.1)
Enabling legislation provides the solid framework for how a C-PACE program can be successfully designed and
structured. Important areas for legislation to include:
4 Appendix C provides a foundational list of existing resources.
• Definitions and treatment of assessments
• Authorizations to set up special assessment
districts, levy assessments, enforce and
(potentially) assign liens, issue bonds, collect fees
and engage third parties
• Requirements for consent from existing mortgage
holders
• Program capitalization
• General categories of allowed improvements
• Underwriting or qualifying guidelines
• Guidelines on audits, energy savings projections,
and measurement and verification
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
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What are the options for program administrative structure? (Section 1.2)
The program’s administrative structure indicates what party or parties are responsible for various program
administrative roles. The National Association of State Energy Officials has organized these structures into the
following categories, some of which may be inherently more standardized than others.5 Program structures are:
5 Interviewees noted that the C-PACE market is moving in the direction of more standardized offerings (i.e., programs in which standard materials, protocols and offerings are
available for larger groups of stakeholders) and suggested that increased standardization is more advantageous for scaling C-PACE.
• Statewide—One statewide program with one main
administrator that allows local governments to opt
into the program (the most inherently standardized
model).
• State and local option—A statewide program
coexists with local programs.
• Strategic state support—The state develops
standard materials, protocols and offerings;
localities use these as they see fit.
• Limited or no state support—State involvement is
limited to enabling legislation; programs are locally
or privately driven (the least inherently standardized
model).
• Regional—Yet to be fully implemented, this model
would create voluntary regional guidelines that
different programs may adopt to help increase
standardization.
A significant takeaway is that, regardless of program structure, even local governments with little staff capacity,
funding or expertise often have options to launch a C-PACE program by joining larger programs or engaging private
program administrators.
How can projects be capitalized and who can capitalize them? (Section 2.1)
• Projects are generally funded either through
bonding (in which a participating bonding authority
issues a bond to raise funds for a project) or direct
funding (where a capital provider funds a project
directly). Interviewees indicate that the market has
moved toward a preference for direct funding, partly
because of transaction costs involved with bonding.
• Programs can either be closed market, where one
capital provider is the sole program funder, or open
market, where multiple capital providers compete to
fund projects. There are different approaches to the
open market model which can impact competition,
participant experience, cost and choice.
What and who can qualify for the program, and how can they be qualified? (Section 2.2)
Enabling legislation may lay out criteria for qualifying projects, and capital providers may have their own criteria for
underwriting projects and building owners. Criteria may include:
• Financial limits (e.g., debt-service coverage
ratio, combined loan to value ratio and C-PACE
assessment to value ratio).
• Minimum savings-to-investment (SIR) ratio,
generally a requirement that projected annual cost
savings are greater than repayment installments.
This can increase the net operating income of the
building, attractive for both building owners and
existing mortgage holders, but has transaction
costs.
4
How are energy cost savings and other impacts estimated and documented? (Section 2.3)
Projecting and documenting energy cost savings may add costs to a project (e.g., the cost of an audit) but can
demonstrate value and congruence with policy goals. Decisions may include whether to require an audit (and
what level of audit) and whether to require or encourage a SIR ratio greater than one (i.e., annual savings exceed
annual costs). These decisions may be complicated if C-PACE is authorized to cover non-energy saving building
improvements.
What stakeholders are essential to engage? (Section 3.1)
Stakeholders should be engaged at each stage of the program process (enabling C-PACE, program setup and
program launch). Strategies for engagement include websites, hosted events, informational material, direct
outreach, social media, dedicated outreach staff, tax bill inserts and strategic partnerships. Important stakeholder
groups to engage include:
• Community leaders — in particular, real estate and
banking
• Local governments (e.g., elected decision makers
and administrative staff)
• Building owners
• Contractors
• Utilities
• Capital providers
• Existing mortgage holders
What are the start-up and ongoing costs? (Section 3.2)
Unless funds are available for program start-up, those costs, along with ongoing operations costs (i.e.,
administrative processes, funding and quality assurance/quality control), will need to be recovered through
program-generated fees. These fees may be structured as:
• One-time fees as a percentage of the financed
amount (typically 0.2% to 5%)
• Annual fees as a percentage of outstanding
balance (typically 0.25% to 3%)
• An “adder” to the assessment interest rate
(typically 3% to 4%)
• Fees not charged as a percentage of costs (e.g., an
application or title search fee)
Many states have invested significant time, and in some cases taxpayer funds, to develop C-PACE programs. This
report will help new program sponsors and other interested stakeholders in understanding the decisions made
by entities that have launched programs and the tradeoffs involved. The lessons learned from C-PACE leaders
presented in this report will allow the next generation of state and local governments to more efficiently and
knowledgeably tackle the questions they need to answer.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
5
Introduction
Commercial Property Assessed Clean Energy (C-PACE) financing has gained wide interest among state and local
governments for funding energy efficiency and renewable energy projects as well as other property improvements such
as seismic resiliency retrofitting (i.e., earthquake mitigation).6 PACE financing uses a voluntary special assessment
placed on an individual property as a mechanism to repay financing extended for energy efficiency, renewable energy
and other building improvements.
6 The commercial sector can be defined differently for different programs but may include commercial, industrial, multifamily and even institutional buildings such as religious
and nonprofit facilities.
One or more C-PACE programs have launched or are in
development in at least 22 states, with funded projects
in 16 states (see Figure 1-1) (PACENation n.d.). At
least $521 million in investments have been made
through C-PACE (an increase of more than 145% from
a cumulative investment of $212 million in 2015 and
more than 50% from $343 million invested as of the
beginning of 2017) (PACENation n.d.).
Commercial and industrial buildings are responsible
for over a quarter of primary energy consumption in
the United States (EIA 2017). Efficiency improvements
in these buildings could result in significant energy
and utility bill savings. A number of market barriers to
adopting energy efficiency must be addressed to unlock
those potential savings. C-PACE can help overcome
several of these barriers.
Figure 1-1. C-PACE activity around the country. Source: PACENation, accessed December 5, 2017.
6
KEY BENEFITS of PACE for commercial buildings include (Caraghiaur, 2016):
• Addressing common barriers to the uptake of energy efficiency, such as:
-Split incentives – Where commercial building tenants pay their own utility bills, and thus reap any
efficiency savings, there is little direct incentive for building owners to invest in efficiency. Through PACE
financing, costs and benefits can be shared between owners and tenants.7
-Uncertainty of tenancy duration – Businesses do not want to over-invest in property improvements if the
building will be sold before return on the investment is fully realized, nor do they want to continue paying
for an improvement in a property if they sell the property. As a special assessment, PACE financing is tied
to the property – not the owner – so the payment obligations can transfer to the incoming owner if the
original PACE participant moves from the improved property. This transferability also supports longer loan
terms.
-Upfront participant contribution – Traditional bank financing often requires an equity investment by the
borrower (e.g., 20%-25%), and generally covers only hard costs (e.g., costs of the installed measures), not
soft costs (e.g., legal and engineering fees). PACE financing can cover 100% of both hard and soft costs
for a project.
-Focus on short paybacks – Property owners often require their investments in efficiency to pay back as
quickly as possible to minimize the negative cash flow impact of the investment. PACE financing terms can
extend to 20 years or longer, allowing smaller repayment installments than traditional loans with typical
five- to seven-year terms. The resulting utility savings can be greater than the repayment installments,
facilitating projects that increase net operating income (NOI).8 Additionally, annual or biannual C-PACE
payments, as opposed to monthly loan payments, may improve project cash flow.
• No personal or parental guarantees. Traditional bank financing often requires a guarantee from the
borrower or, for subsidiary companies, a guarantee from the borrower’s parent company. C-PACE does not
require personal or parent company guarantees because it is property-based financing.
• Non-acceleration of the assessment. C-PACE obligations do not accelerate — that is, the full assessment
amount does not come due in the event of, for example, a foreclosure.9 If there is a foreclosure or sale, the
owner is only obliged to pay the past due amount; the subsequent owner is responsible for future C-PACE
assessment payments.10
• Off balance sheet. As a special assessment paid on the property tax bill, C-PACE arrangements could
potentially garner off balance sheet treatment, meaning companies would not have to directly account for
them as added debt on their books.11
There are many good resources available on C-PACE (see Appendix C). Most of those resources serve as an
introduction to C-PACE and its features or are specific to particular state or local government structures. However,
the C-PACE market is changing quickly as different program and financing structures are gaining traction (see
Appendix B), and many states have amended their enabling legislation to better align with stakeholder needs.
7 This can be accomplished through a triple-net lease. Triple-net leases are arrangements in which tenants – not owners – are responsible for paying property taxes, utilities,
and the lease. Since PACE financing is a special assessment that is paid back through the property tax bill, it can facilitate tenants (indirectly) paying for PACE improvements.
8 Net operating income is the building’s revenue net of its operating expenses.
9 George Caraghiaur, Senior Fellow at PACENation and an expert in commercial real estate finance, believes that the three key benefits to C-PACE for commercial real estate
owners and managers are: 1) non-acceleration, 2) addressing split incentives, and 3) its non-recourse nature (Caraghiaur 2017).
10 Arrearages are past due amounts that are still owed.
11 Proper balance sheet accounting of C-PACE obligations can be complex and may vary based on jurisdiction or other reasons. To properly account for the balance sheet
treatment of a C-PACE obligation, readers should consult an accounting professional.
Establishing a C-PACE program is a multi-step process involving a number of stakeholders. The process varies
significantly from state to state – and even from jurisdiction to jurisdiction – based on enabling legislation, other
state laws, and program rules. State and local governments frequently ask about two very different processes: (1)
How do we get a C-PACE program started in our jurisdiction, and (2) How do projects get financed with C-PACE?
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
7
Lessons in Commercial PACE Leadership is intended to address the first question regarding creation of the
program. Appendix A briefly addresses the second question related to execution of a project in terms of the project
sequence and the role of various actors.
Standing up a C-PACE program involves a number of key decisions. This report provides a roadmap to navigate
these decisions drawing from the experience of those who have blazed the trail. State and local governments,
in partnership with private specialty firms experienced in C-PACE implementation and nonprofit leaders, have
demonstrated an ability to launch various C-PACE program models. Stakeholders interviewed for this report
note that certain approaches have gained prominence in the marketplace. In preparing the report, Berkeley Lab
reviewed existing literature and background materials (general reports and surveys, program handbooks, enabling
legislation, and requests for proposals for program administrators) and interviewed industry stakeholders (subject
experts, capital providers, program administrators, and program sponsors).
The intended audience of this report is state and local decision makers that seek an informed, objective
perspective of what it takes to launch a C-PACE program. Many states have adopted C-PACE enabling legislation
but have discovered there is a significant amount of work post-legislation. This resource targets states with
enabling legislation but no existing program; states that do not yet have enabling legislation but might be
interested in adopting C-PACE with a better understanding of the long-term process and commitments; and
thousands of local governments that may want to set up a C-PACE program for their jurisdiction.
Additionally, Berkeley Lab convened a Steering Committee for this report that is comprised of individuals who
have been involved with the setup of C-PACE programs — both relatively new programs and those that are now
more mature.12 Steering Committee members provided guidance on top issues for program setup. In their view,
stakeholder engagement and program set-up costs were the primary considerations. Members also were among
those interviewed on a wide range of issues for the report and they reviewed a draft of the report.
The report is organized into three stages of program development:
12 See “Acknowledgments.”
13 Although stakeholder engagement is discussed under Stage 3 – program launch – stakeholder engagement is vitally important at all stages of C-PACE program development.
This section describes what
enabling legislation addresses and
what that means for setting up a
C-PACE program, and examines
program structure.
This section focuses on design
options for setting up a program,
including capitalization, participant
and project qualification, financing
terms, and the treatment of energy
and cost savings.
This section considers factors that
impact the launch and operation of
the program, including stakeholder
engagement13 and the costs of
ongoing operations.
Each section describes the decision points involved, lays out the options and considerations, and presents
experience from the field. Appendix C provides resources for more information.
2 STAGE 2
Program setup 3 STAGE 3
Program launch1
STAGE 1
Enabling C-PACE
financing
8
1. STAGE 1: Enabling C-PACE Financing
14 In Texas, guidelines were developed by a group of stakeholder volunteers.
15 A limited selection of C-PACE third-party program administrators can be found online at PACENation.
State-enabling legislation forms the policy
framework of the C-PACE program. This framework is
normally a high-level description of a limited number
of aspects of the program design. C-PACE programs
must expand upon the details of this framework and
establish guidelines on key program implementation
features. Implementing the policy through defined
guidelines and details is the responsibility of the
program sponsor, i.e., the public or quasi-public
entity responsible for establishing the C-PACE
program.14 The sponsor may develop guidelines
themselves, engage an advisory group to help,
delegate guideline decisions to a third-party program
administrator, or use some combination of these
approaches, depending on specific state policy.15
1.1 What should enabling legislation address?
What is this?Who can do this? What are the tradeoffs?
Enabling legislation authorizes
C-PACE financing in the state.
At minimum, it creates the legal
definition of a PACE assessment
for that state (which may be a new
concept or may piggyback on exist-
ing statutory definitions for special
assessments). Because levying
and collection of special assess-
ments for public improvements are
typically handled by local govern-
ment bodies, enabling legislation
generally describes a minimal role
that local governments must play
to enable PACE at the local level.
Legislation may be prescriptive in
the parameters it sets out or leave
many program design decisions
to program sponsors. It may also
dictate what entity or entities are
responsible for setting up the
program, how the program may
be structured, and how it can be
capitalized.
The state legislature passes (and,
as needed, amends) enabling
legislation to establish the C-PACE
policy.
More prescriptive legislation
may provide a clearer path on
specific program aspects for
responsible entities and generally
supports standardization of PACE
in the state, but could inhibit
local governments’ or program
administrators’ ability to tailor
those aspects for particular needs.
Broader legislative language
may be more flexible for program
design, but leaves some major
program development decisions
to the program sponsor and
may result in non-standardized
programs coexisting in the same
state.
1
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
9
Local governments are generally authorized to finance publicly owned goods that have public benefits. Because
PACE finances privately owned goods with public benefits, state legislation is generally needed to permit local
governments to implement PACE programs (SCEIP 2012), often by defining and classifying certain building
improvements as a public good or public improvement. The legislation that enables C-PACE in a state outlines
the program design framework and sets limits on what can be done. Authorizations granted by the PACE enabling
legislation usually build off of, and therefore may be somewhat dependent on, existing legislation that is not
PACE-related.16
Legislation may be written broadly (allowing more flexible interpretation) or narrowly (more directive). For instance,
some enabling legislation gives guidance for the entity that will be the C-PACE program sponsor, responsible for
setting up the program.17 Utah is an example. Legislation in 2017 (S.B. 273) specifies that the state’s Office of
Energy Development will “administer and direct” the statewide C-PACE district, which municipalities can join. Cities
and counties may still elect to establish their own programs (Utah State Legislature 2017). It is important for the
program sponsor setting up a C-PACE program to understand what program aspects the enabling legislation has
codified into law and what decisions it has left to state or local program developers to either specify in guidelines
or leave to the market.
Although C-PACE enabling legislation can vary significantly from state to state, it is important to address certain
program aspects (capital providers interviewed for this report noted that legislation lacking these elements has
caused challenges for subsequent program efforts):18
• Definitions and treatment of assessments. C-PACE assessments may be given a new statutory definition or
given the same statutory definition or classification as an existing statutory concept – for example, for special
assessments, betterment assessments, real property taxes, etc. Either way, the definition of assessment
clearly states:
-The position (e.g., seniority) of the assessment19
-The statutory treatment/process (i.e., remedy) if the assessment is not paid (e.g., assessment lien).20
In states where this would differ among local jurisdictions, the state law should instruct local PACE
regulations to address this aspect.
-The assessment is not accelerated or extinguished in a foreclosure.21 This means the assessment is
attached to and stays with the property – not the property owner – if the property changes ownership,
even in a foreclosure, unless the seller pays off the lien first.
• Authorization for local government actors, state government actors, or both — to:
-Set up special assessment districts. Special assessment districts are areas in which local governments
can secure financing for or directly finance qualifying building improvements, by levying an assessment on
properties that volunteer to participate in PACE.
-Levy assessments. Assessments are obligations — secured by the property – to repay financing for
qualifying building improvements.22
-Enforce assessment liens. Assessment liens may be enforced through existing processes for delinquent
taxes or assessments or may be enforced through specific provisions detailed in the PACE law.
-Assign assessment liens. Unpaid assessments are generally enforced through the imposition of a lien (see
above definition of an assessment). The right to impose and enforce such a lien may stay with the entity
that levies the assessment or may be assigned to a third party.
16 For example, laws which grant local governments the right to set up special assessment districts to raise money for publicly owned goods, such as roads, are the basis for
enabling PACE special assessment districts. If an aspect such as the process for bonding is not delineated in PACE-enabling legislation, program administrators may have to
rely on existing law for designing that aspect. Decision-makers should consult appropriate legal counsel.
17 In this way, legislation may implicitly give direction on what program administration structure can or should be used.
18 The capital providers interviewed suggest that if these issues are not addressed, the first step in starting a program could be amending legislation to make sure they are dealt
with.
19 C-PACE assessments are typically senior to debt secured by the property. They are also typically pari passu or junior to all other property taxes and assessments.
20 Capital providers suggested to the authors that, to participate in C-PACE programs and fund projects, they want strong legal security, and clarity and certainty about the lien
enforcement process.
21 States without these provisions could have difficulty securing lender confidence.
22 Kevin Moyer of PACE Equity says that it is important that the assessment be treated as equal to other property tax assessments (Moyer 2017).
10
-Issue bonds. These are typically revenue bonds backed by payments from the C-PACE tax assessment.
They are one option that can be used to capitalize projects. This is another way to secure a lender’s C-PACE
investment in a property.
-Collect fees to pay for program costs. Fees help pay for non-project program costs (for more, see Section
3.2.2).
-Engage a third party. Local governments are sometimes explicitly authorized to hire a third party to take on
some (or most) program responsibilities, which may include facilitating financing.
• Mortgage holder consent requirement. Requires any existing mortgage holder to consent to a C-PACE
assessment prior to the assessment being levied.
• Program Capitalization. Specifies whether C-PACE financing be provided through private third parties, public
bonds or both.
• General categories of improvements that may qualify under the program (e.g., eligible project types and
eligible building types).
• Underwriting or qualifying guidelines, which may include obtaining consent from existing mortgage holders.
• Guidelines on audits, energy savings projections, measurement and verification standards, and
requirements for quality assurance and quality control of projects.
IMPORTANT QUESTIONS to ask about C-PACE enabling legislation
• Does the law clearly define assessments, their position, and how they are enforced if not paid?
• Does the law specify or provide guidance on what entity is responsible for setting up the
program?
• What guidance does the law provide on how the program should or can be structured?
For example:
-Is state-level administration authorized or required?
-Is multijurisdictional or inter-local administration allowed – i.e., multiple local governments
joining together to run a program or running a program through a joint administrator? If so, what
powers do those administrators have (e.g., can they levy assessments, assign liens, or issue
bonds)?
• How can funding be raised? For example:
-Is bonding authorized? If so, by whom?
-Can private capital providers participate? If so, can multiple providers participate?
• What measures are eligible for C-PACE financing? Are both energy and non-energy measures
eligible? Are both existing building retrofit and new construction financing eligible?
• What criteria must a project meet to qualify for C-PACE financing? For example, must cost
savings from the project be equal to or greater than the project cost?24 What level of quality
assurance is mandated? What requirements must program administrators comply with — e.g.,
requirements for producing forms and holding public hearings?
2324
23 Some enabling legislation may be unclear on this point. In Virginia, alleged lack of clarity has led to differences of opinion over whether statewide program administration is
authorized (Farrell 2017).
24 Requirements that cost savings be greater than project costs are commonly referred to as savings-to-investment ratio greater than one (SIR > 1).
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
11
Where decision-makers have realized that certain aspects of the program could be improved, they may
recommend amending the enabling legislation or may work with legislators to update or pass new legislation. For
example, enabling legislation in Connecticut initially only allowed a lien to be placed once project construction was
complete. This significantly impeded project flow. Legislative amendments modified the requirement to enable
lien recording upon execution of the financing agreement (for more see “Lessons from the field,” Section 2.1.3)
(Lombardi 2014; McCarter 2017). Other examples of amendments to enabling legislation include (Clean Energy
Solutions 2016):
• Simple clarifications. In addition to other changes, Colorado used legislation subsequent to initial C-PACE
authorization to clarify notification requirements, utility rights, and bond approvals.
• Adding categories of measures that are eligible under the program. California amended legislation to allow
water efficiency measures to qualify under C-PACE.
• Changing how programs may be capitalized. Utah added third party private financing options through an
assignable lien to its program to overcome a challenge in its initial legislation which required municipal bond
issuance.
• Amending qualification criteria. In September 2017, New York increased its allowed loan-to-value ratio (LTV)
from 10% to 35% of the property’s value (Energize NY PACE 2017).
C-PACE program sponsors should understand what enabling legislation has empowered a jurisdiction to do or how
it has limited what it can do. This significantly impeded project flow and legislative amendments were added to
modify the requirement to enable lien recording upon execution of the financing agreement (for more see ‘Lessons
from the field’ Section 2.1.3) (Lombardi 2014, McCarter 2017).
C-PACE program sponsors should understand what enabling legislation has empowered a jurisdiction to do or how
it has limited what it can do.
LESSONS FROM THE FIELD
Prescriptive vs. flexible enabling legislation – A survey by Clean Energy Solutions of enabling
legislation in 13 jurisdictions with C-PACE programs found that many common features, such as
financial underwriting and categories of eligible measures, are generally prescriptive (forming the
framework within which the sponsor develops the program), whereas others — marketing, financing,
contractor management, and documentation of projects — are generally flexible, determined by
participating localities (Clean Energy Solutions 2016). These decisions form the guidelines that
sponsors will have to make themselves or delegate.
Amending legislation – A 2013 law in Colorado created a statewide C-PACE district, adding to 2010
legislation that created one for residential PACE. C-PACE program administrators found that several
areas of the amended law, such as provisions for tax collection, were problematic. The legislature
provided for amendments in 2016 that removed the prescriptive tax collection language, instead
referring to existing laws (Scharfenberger 2017).
12
1.2 What are the options for program administrative structure?
What is this?Who can do this? What are the tradeoffs?
The program’s administrative
structure dictates who can and
will be responsible for different
aspects of program administration.
The responsible entity may manage
some or all program administration
roles, may share roles, or may hire
third parties to fill certain roles.
Program administration may be
managed by a state government
agency, local governments
(including two or more acting
together or through a third party), a
quasi-governmental agency, private
entities, or nonprofit organizations.
Some programs may fill different
roles with different entities (see
Table 1-1).
Benefits of certain structures may
include economies of scale, the
benefits of standardization, lower
costs, reduced staffing needs,
performance risk sharing, and
alignment of tasks with available
skills and capacity. Tradeoffs may
include less local input and less
flexibility for local needs, local
nuances, and local goals.
Enabling legislation implicitly or explicitly frames a program’s administrative structure, and the program sponsor
will need to work out the details in setting up a program consistent with the respective state statute. The National
Association of State Energy Officials (NASEO) has organized the different models of C-PACE administrative
structures based on the level of involvement of state government actors (e.g., state energy offices, green banks)
and the flexibility afforded to local government participants. NASEO’s report lays out four models of C-PACE
program structures currently in use: 1) statewide model, 2) state and local option program model, 3) strategic
state support model, and 4) limited (or no) state support model (NASEO 2016). Additionally, at least one set of
stakeholders is developing a regional model (see Table 1-1).
1.2.1 Implications of program structure
A key decision involving program structure is which stakeholders take on which responsibilities, to the extent
these are not specified in enabling and other relevant legislation. There are a range of start-up and operating
responsibilities that may fall on local governments depending on what program model is in place.
Enabling legislation dictates whether there is a statewide program structure and whether local governments will
be able to establish their own program or will have to go through a statewide program. If no statewide program
is available, local governments can launch and manage their own programs. They may take on all program
responsibilities using their own internal capacity, may contract most or all program responsibilities to a private or
nonprofit third party PACE program administrator, or may share program responsibilities with a third party program
administrator. If available, they may be able to join a multijurisdictional or inter-local program, where multiple
local governments participate in a program – or programs – offered by an organizing entity such as a joint powers
authority or port authority. Local governments may also be able to ride on a cooperative procurement agreement
that another local government has entered into with a C-PACE program administrator. The option to ride on
another local government’s cooperative procurement agreement may be a function of existing state procurement
legislation, or the option may be available as a result of the enabling C-PACE legislation. Arlington, Virginia, has
set up a cooperative procurement agreement with a third party C-PACE program provider (Arlington County PACE
Program 2017). Other local governments in the state are contemplating using the cooperative procurement
agreement, which would mean they would not have to go through a request for proposals process, although they
would still have to negotiate contract details with the program administrator.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
13
1.2.2 Program structure options
25 For more on Accelerating the Commercial PACE Market, see https://naseo.org/data/sites/1/documents/publications/CLEAN_Master%20NASEO%20PACE%20Memo%20
2016-5-18%20FINAL.pdf.
26 Appendix B provides a quick glance at program structures in use today with roles that the state plays and options for local governments under different structures.
27 Specialty PACE capital providers engaged in the development of this report noted that standardization (or “uniformity”) is a top priority that they feel supports program
success along with efficiency and financial sustainability.
Table 1-1 compares different program structures. This organization is adapted from NASEO’s 2016 report,
Accelerating the Commercial PACE Market.25The categories are not strict characterizations of the different
structures. Some programs may have features of more than one category and they may change over time.
Table 1-1. C-PACE program administrative structures (adapted from NASEO 2016)26
Model Description
Statewide
• One statewide administrator (government agency or affiliated entity); may hire
a third party to take on some or many of the program administrator roles
• Local governments opt into the statewide program; there are no locally-
administered programs.
• Structure directed by enabling legislation
• Colorado, Connecticut, Rhode Island and Utah are examples of states using
this program structure.
State and local option
• Statewide program coexists with locally- or privately-administered programs
• Structure directed by enabling legislation (often allows multijurisdictional or
joint programs)
• Implementation may or may not be statewide but is open to any locality that
opts in.
• Michigan and New York are examples of states using this program structure.
Strategic state support
• State gives guidance (e.g., technical assistance, model forms) to local and
private program administrators
• Following the state guidance is not required; programs can access resources
developed at the state level or operate as they see fit
• State agencies or state-level actors may be involved in stakeholder
engagement.Texas launched under this structure and a number of other
states have expressed interest.
Limited or no state
support
• No (or limited) state-level involvement
• Programs are locally- or privately-driven
• California and Ohio are examples of states using this structure.
Regional
• Programs from multiple states collaborate to coordinate program standards
across states.
• The Mid-Atlantic PACE Alliance — Maryland, Virginia, and Washington, D.C. –
are in the process of coordinating for consistency across multiple programs in
the three states.
These different structures broadly fit on a spectrum that runs from more standardization to more diversity in various
program aspects (see Figure 1-2). The main tradeoffs are the ability to tailor program design to address local
needs, which structures allowing more local administration may facilitate, versus the efficiencies of lower costs and
standardization that programs administered at higher levels may offer.27
14
The spectrum of existing C-PACE program structures.
Figure 1-2. The spectrum of existing C-PACE program structures. Certain structures may be fundamentally more standardized.
In the statewide model, C-PACE programs are run at the state level by a state entity, a quasi-state entity such as a
green bank, or a third party. In this program model, local governments can only participate in C-PACE by opting into the
statewide program. The functions of administration are handled at the state level, but some or all of the mechanisms
of the financing process (e.g., levying assessments and servicing the C-PACE obligations) may be handled by either the
state-level program administrator or by the local government in partnership with the state administrator.
Under the state and local option model, local governments may participate in C-PACE without joining the statewide
program by setting up their own programs. In practice, local governments may have little incentive to take on the costs
and capacity demands of standing up their own program if there is a statewide program available that will take on
some or most of those responsibilities and costs.
In the strategic state support model, local governments may develop their own C-PACE program, but standardized
statewide protocols and materials are available. In Texas, where this model is most mature, a nonprofit program
administrator is available to run the standardized program. To date, 15 local governments offering C-PACE are using
this model and the standardized processes and materials developed in the PACE in a Box toolkit (Heydinger 2017).
Using this model reduces the burden on local governments to three primary responsibilities: 1) recording the lien
on the property, 2) notifying property owners of their C-PACE repayment responsibility, and 3) collecting past due
assessments. Texas’s approach effectively furnishes a program that local governments can opt in to, letting them
participate in C-PACE with minimal cost or effort on the part of local government staff.
The limited or no state support model gives local governments authority to set up C-PACE special assessment
districts. The state has little or no other role. California, to date the largest C-PACE market, uses this model. Some local
governments (e.g., Sonoma and Placer Counties) have developed and run their own C-PACE programs. Simultaneously,
a number of joint powers authorities (JPAs) work with local governments across the state managing PACE programs,
generally overseeing multiple private, third party program administrators who agree to follow the program guidelines of
the JPA sponsor.28 Local governments have the ability to opt into a JPA-managed C-PACE program.
The regional model structure is complementary to the models above and has yet to be implemented. The one
market that is developing this program structure — the Mid-Atlantic PACE Alliance (MAPA) in Virginia, Maryland,
and Washington, D.C. — will produce regional guidelines and marketing material that would give the state and local
programs a path towards regional standardization. The guidelines would be voluntary and would not prevent states
or local governments from developing their own program guidelines and protocols (Farrell 2017). This is not an
enforceable agreement or program, but rather a collaborative approach to networking and collaborating across states
to provide consistency across respective PACE programs. The goal is a larger, more seamless market which provides a
strong signal to lenders, building owners, and energy services contractors and accelerates market adoption.
28 JPAs are administrative structures designed to help local governments achieve economies of scale in certain administrative duties. In California, for example, they are authorized to
issue bonds on behalf of the local governments and can provide this service for C-PACE programs. Issuing bonds is required under California PACE rules.
Less standardization More standardization
Limited or
no state support
State and
local option
Strategic
state support Statewide
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
15
1.2.3 Roles and standardization
Because assessments, like property taxes, are levied at the local level, local governments have a role in each of
the models outlined above, which may range from very minimal (e.g., establishing a C-PACE special assessment
district, recording liens), to full administration of the program. Local governments have two basic choices in terms
of how to participate:
1. Run the program at the local level, either administered by the local government as in the case of the Sonoma
County Energy Independence Program (SCEIP), or with help from a third party program administrator as with
Set the PACE St. Louis, or through a combination of these two approaches.
2. Opt-in to a larger program such as a statewide program; join other local governments using third party
administrators (e.g., through a JPA, as many have done in California, or through a cooperative procurement
agreement in which one local government contracts with a program administrator and other local
governments use that same agreement to hire an administrator for their jurisdictions); or use a common
program administrator applying the same general program options and guidelines (e.g., local governments
that use Texas PACE Authority, a nonprofit program administrator).
Opting into a larger program or using a common program administrator offers standardization of program features.
Table 1-2 lists benefits of standardization for different stakeholders.
Table 1-2. Benefits of standardization for different stakeholders
Stakeholder Benefits
Contractors Those working across multiple jurisdictions only have to understand one C-PACE
process.
Building owners
Owners with properties in different jurisdictions need only be familiar with
one C-PACE process. Those with buildings in more than one place can take
advantage of economies of scale, closing multiple projects in different localities
under the same program.
Capital providers
Standardized products are easier to sell (i.e., more liquid) to secondary markets;
due diligence costs are lower if paperwork and analysis is in a consistent format;
it is easier to develop a set of comparable projects against which new projects
can be evaluated.
Program administrators
There are greater efficiencies and economies of scale (e.g., costs for developing
forms, contract templates, and marketing collateral can be spread over a larger
customer base).
Local governments
The ability to opt in to a larger program allows the local government to shed
some (possibly most) administrative responsibilities.
1.2.4 Local Legislation
Because of the necessary and special roles of municipalities vis-a-vis assessments and the desire to make PACE
optional for municipalities, after a state adopts enabling legislation, additional legislative action from the local
government is usually required to enable PACE at the local level. In some cases, this may be as simple as passing
a resolution to opt into an existing statewide or multijurisdictional program. In other cases, the state PACE law may
instruct municipalities to pass a local law or ordinance addressing specific issues that should be clarified at the
local level. In this case, municipalities often work together or with a third party to craft a standard form of local
law that can readily be adopted by any local government, whether they opt into the same program administrative
structure or not. In some states, local government processes may vary from jurisdiction to jurisdiction, which may
make standardization inappropriate for those aspects of a C-PACE program.
16
LESSONS FROM THE FIELD
California and Connecticut. The two markets with more C-PACE investment volume than any other,
California (started in 2009) at $195 million and Connecticut (started in 2013) at $101 million have used
program structure models at the extremes of the standardization spectrum (PACENation n.d.).29 Connecticut
and California collectively account for 57% of the total C-PACE market in terms of financing volume
(PACENation n.d.).
• California’s approach to C-PACE leaves development of programs to local governments with minimal
state-level involvement — the limited or no state support model. The state has produced about 40% of
the nation’s C-PACE volume ($) to date. The market has seen a mix of local governments either develop
their own programs or join JPAs that use private providers to run C-PACE programs. At least one local
government, Sonoma County, employs both approaches. The SCEIP is a county-run program that is one
of the most successful in the country in terms of number of projects completed. To expand consumer
choice and funding capacity, to sustain program growth, and to help meet the county’s aggressive goals
for reducing greenhouse gas emissions, Sonoma decided to use the County of Sonoma Public Financing
Authority, a JPA, to allow private PACE providers to offer programs alongside SCEIP.30
• The Connecticut Green Bank, a quasi-state agency, sponsors the state’s C-PACE program and uses
a third party to assist with project origination and program technical administration to comply with
the Connecticut legislation’s project technical review requirements. The Connecticut Green Bank
oversees the program design, marketing, project approval and financial underwriting processes;
local governments record the assessment, collect and remit the repayments, and assign the benefit
assessment.31 The structure reduces local staff needs and can mitigate default risks for localities
(NASEO 2016).
Texas. In Texas, local governments are given broad autonomy as to how they set up their C-PACE program,
with few required statewide procedures. However, with 254 counties and 1,454 local governments
authorized to establish PACE programs, stakeholders knew standardization across programs would be
important to the success of C-PACE (U.S. Census Bureau 2013). A nonprofit program administrator offers
standardized materials and protocols (called “PACE in a Box”) and will run programs for local governments
by request, including recording assessments. The result is that C-PACE in Texas is fairly standardized and
centralized, allowing stakeholders across multiple jurisdictions to know what to expect when they participate
in C-PACE (Heydinger 2017).
29 Interviewees note that California is a much larger market than Connecticut and has been running C-PACE programs longer than Connecticut has. As a result, comparing the
total investment of each does not give an apples to apples comparison of program penetration.
30 Municipalities in Sonoma County can opt into the PACE programs offered by the Sonoma Public Financing Authority JPA.
31 Benefit assessments (or special assessments) are charges that local governments or other authorized entities record on individual property parcels to pay for public goods.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
17
2. STAGE 2: Setup and Program Guidelines
Within the legislative framework, the program sponsor
develops program guidelines. Many engage third party
program administrators to manage at least some
aspects of program operations. Third-party program
administrators may also be tapped to assist or lead
in fashioning these guidelines, which could shift
significant work away from the sponsor. However, there
are several reasons sponsors may want to lead the
effort of establishing guidelines or be closely engaged
in the process:
• They may be statutorily obligated to write program
guidelines.
• They have been provided a budget to stand up the
program and administer the day-to-day activities.
• They may prefer to have autonomy over the
guideline development.
• There may be unique program aspects that
are outside the competencies of the program
administrator which the sponsor will handle.
This section provides an overview of the common decision points a program sponsor will have to consider when
setting up a C-PACE program and the options available. The collective set of decisions made by a program
sponsor through either development of program guidelines, or delegation of program operations to a third party
administrator, constitute the program set-up stage. Decision points discussed below include project capitalization,
qualifying properties and measures, and estimation and documentation of energy and cost savings.
2.1 How can projects be capitalized and who can capitalize them?
What is this?Who can do this? What are the tradeoffs?
Capitalization refers to raising
funds for C-PACE projects. There
are three important aspects of
capitalization: 1) the funding
mechanism (i.e., how capital is
raised), 2) the capital provider
(the entity that provides capital),
and 3) the funding process (i.e.,
how capital is provided). Enabling
legislation may dictate any or all of
these.
Federal, state, and local
governments, quasi-governmental
entities, financial institutions
(e.g., banks and community
development financial institutions),
and specialty PACE capital
providers can provide capital. The
funding process usually involves
the building owner, capital provider,
local government, or the special
assessment district that covers
the project, as well as the holder
of the existing mortgage on the
property. It also may involve the
program sponsor or the program
administrator.
Different financing structures
have different costs and benefits
in terms of expense (both cost
and staff capacity), sustainability,
timing of funding disbursement,
lender involvement, and program
administrator involvement.
2
18
Decisions about capitalization may have critical impacts on a C-PACE program. Decisions include whether the
program should raise capital through bonding or direct funding, whether to allow multiple capital providers to
participate or just one, how to structure the funding process to make it work best for building owners and other
stakeholders, whether to include credit enhancements, and how to engage with utility incentive programs.
Program administrators, to avoid negative reaction from local or national bankers associations, should require
that existing mortgage holders provide consent for a building to participate in C-PACE.32
32 Multiple stakeholders noted the importance of obtaining existing mortgage holder consent for C-PACE. DOE notes that commercial mortgages generally include a “due
on encumbrance” clause that allows the mortgage holder to call the loan due if the property is used to secure additional debt. Further, this clause and the complexity of
commercial mortgages are reasons that nearly all C-PACE programs require that participants obtain written consent from their mortgage holders (DOE 2013). A PACENation
survey of mortgage lenders found that they do not generally oppose C-PACE but do support consent requirements (PACE Now 2014).
33 George Caraghiaur notes that PACENation’s check list for legislation includes allowing programs to access project capital from as many sources as possible, including any
funds legally available to the sponsoring government; municipal bonds (taxable or tax-exempt), in conjunction with any source of credit enhancement; and funds provided
directly by a third party.
34 Project revenues provide the backing for revenue bonds (Investopedia n.d.). Revenue bond holders have no recourse to the full faith and credit of the issuing institution.
Bonds may be bought by the general public, or by a single buyer or a limited group of buyers through a private placement. The buyers of the bonds are the ultimate capital
providers for these projects.
2.1.1 Funding mechanism
The two main ways C-PACE projects are funded are direct funding and bonding.33 Most new C-PACE programs rely
on direct funding.
Direct funding. Under this approach, capital for projects is raised directly from capital providers (i.e., lenders). The
lender’s investment in the C-PACE project is secured by a financing agreement giving it the right to receive loan
repayments from the assessment on the property (PACENation n.d.). This avoids bonding transaction costs and
may be faster than bonding. While national specialty lenders have not shown strong interest in smaller projects
(e.g., those less than $100,000), they have been funded in Connecticut by the state’s Green Bank and by small,
private community development financial institutions, and other nonprofit institutions in select markets.
Bonding. Revenue bonds issued by an authorized entity, such as a local government or a JPA, are used to
capitalize C-PACE projects. Some entities, such as a statewide C-PACE program administrator, derive their
authorization to issue a bond through enabling legislation.34 When a bond is issued, a tax assessment is recorded
on the property (or properties in cases where the bond is funding multiple projects). Bond proceeds are paid back
through the tax payments remitted by the property owner. The bonding process typically has high transaction
costs. For example, each issuance has legal, sales, and financing costs. It also can be time-consuming, lasting
30 to 90 days (PACENation n.d.). Thus, bond issuance is usually reserved for raising larger amounts of capital. To
justify these transaction costs, bond issuances may need to be $500,000 or more.
C-PACE bonds are issued in two ways (programs that use bonding may employ both):
• Single issue. If a project is large enough that transaction costs are proportionately small, a bond may be
issued for a single project. Typical costs for bond issuance range from about $15,000 to $25,000 (McCarter
2017). For large projects, this might not be a significant portion of the overall project costs. For example, on a
$2.5 million project, $25,000 in bonding costs would only be 1%.
• Pooling. If a project is small enough that the costs of a single issuance would not make sense, the issuing
entity may aggregate (“pool”) applications for projects until there is sufficient dollar volume to justify issuing
a bond. Pooling can spread out overall transaction costs and allow smaller projects to participate. However,
it can also add uncertainty and delay for projects that need funding. It may take significant time to gather
sufficient project volume to issue a bond, with the possibility that a sufficient volume of projects may not
materialize.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
19
2.1.2 Capital provider
35 Search specialty PACE capital providers online at PACENation.
36 In addition to providing capital for C-PACE projects, both Sonoma County and the Connecticut Green Bank also use private providers of capital, although Sonoma does so
through a second PACE offering, not SCEIP.
Entities that provide capital for C-PACE programs include specialty
capital providers (financing companies that specialize in PACE financing
or have divisions devoted to PACE), financial institutions (e.g., regional
banks, community development financial institutions, and commercial
banks) and governments. For some projects, especially larger projects,
multiple capital providers may be involved.
• Specialty capital providers. There are a growing number of firms
that specialize in providing capital for C-PACE projects. These may
be firms that were created to provide capital for C-PACE projects or
dedicated C-PACE financing branches of larger firms.35
• Financial institutions. Banks and other financial institutions may
be interested in lending to C-PACE projects. Participation by local or
regional banks can allow them to benefit from business generated
through the program and stimulate local economic activity. Banks
may not be familiar with C-PACE financing and may be concerned
about the liquidity of C-PACE arrangements (i.e., how easy they are
to sell and get off their books in order to replenish available capital
and maintain their capital – and other regulatory – requirements),
although a recent securitization comprised exclusively of C-PACE
assets shows that secondary market sales that provide liquidity are
possible (PR Newswire 2017).
• Governments. Governments can provide capital for a C-PACE
program in five ways: 1) issue bonds, 2) use general funds, 3) use
grant money, if available, 4) borrow from other agencies, or 5)
collaborate with another type of capital provider. For example, for
SCEIP, the county issues bonds and borrows from its other county
departments. The Connecticut Green Bank, a quasi-governmental
institution, has used its own funds to capitalize projects.36
Table 2-1 shows that existing C-PACE programs have generally used one of two models to source capital for
C-PACE projects: closed market or open market. A closed market relies on one capital provider. Open market
programs allow competition among capital providers.
Entities that provide capital
include specialty capital
providers, financial institutions
and governments.
20
Table 2-1. Closed and open market C-PACE programs
CLOSED MARKET MODEL
OPEN MARKET MODEL
Definition
and mechanics
The program relies on a single provider of
capital to fund PACE assessments, usually
dedicated third party capital.
Building owners can choose among
multiple participating capital providers
or seek a provider on their own. Capital
providers may apply to become qualified
to lend through the program. Programs
may prequalify a list of lenders, and some
allow building owners to arrange their own
financing.
Advantages
• If government funds are available,
the program may be able to set
attractive terms, such as interest
rates and closing fees. However, if
a single third party capital provider
is used, the terms may be set with
no competition to inform them (SRS
2017).
• Oversight and coordination can be
easier.
• All projects above a minimum
finance amount that meet program
underwriting criteria can be funded.
• Creates competition which is
attractive to building owners and
allows them to negotiate best
market-based terms.
• May provide building owners a better
chance to find a provider interested
in funding their project.
• Can allow first mortgage holder (or
other lender a building owner has a
relationship with) to capitalize the
C-PACE project
• Can accommodate owner-arranged
deals
• Having more lenders means
increased marketing, education and
capital available for a broader range
of project types and sizes.
Disadvantages
• Does not take advantage of
competition to realize most efficient
packages for participants and can
result in higher rates, fees, and
program costs
• Potential pool of capital may be
smaller and less sustainable than
accessing larger capital markets
• May limit breadth of project types
and sizes
• Small projects potentially may not
attract the interest of any lenders,
although as the market matures
financing smaller projects, e.g., less
than $100,000, are becoming more
feasible.
• May require more staff time to
recruit and prequalify lenders and
coordinate projects
Examples
• The less common model among state
and local programs
• Placer County, California
• Multiple programs administered in
Florida
• The more common model among
state and local programs
• Multiple programs including
Connecticut, Texas, and Michigan
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
21
The market trend is that recently established C-PACE programs use the open market model. Although in all open
market arrangements the property owner may select the capital provider, how this is done varies widely, affecting
both the level of choice provided to the property owner and the role of the administrator. Approaches include:
• Program administrators work with lenders selected by the property owner;
• Program administrators prequalify capital providers and allow property owners to apply to prequalified lenders;
• Program administrators list some capital providers – without preference – as examples for property owners
that do not have relationships with capital providers, while also working with other capital providers selected
by property owners;
• Program administrators may allow the participation of multiple capital providers but have one “preferred”
provider that acts as a back stop to invest in projects that no other capital providers are willing to fund;
• Multiple program administrators, each furnishing capital themselves, participate in a C-PACE offering.
Some program models include more than one of these approaches. These different approaches could impact
competition in the market and program participants’ experience, cost and choice.37
37 Open market competition could also extend to the provision of some program services (e.g., forecasting project savings). Eventually, in mature markets with a clear, solid
program framework and common rule book, an open market model could even potentially include competition among qualified program administrators.
38 According to Brian McCarter at SRS, a C-PACE program administrator in several states, in the last year many lenders have been warming to the idea of lender-direct billing and
collections (McCarter 2017).
2.1.3 Funding process
The funding process consists of three steps: 1) determining the source of funding, 2) determining how the funding
is disbursed for the project, and 3) determining how it is subsequently repaid. The following are two important
aspects of the funding process:
• Who services the PACE assessment? Local governments typically provide these services. Property tax
collectors bill PACE participants, collect the assessment payments, and remit the payments to the capital
provider. This process is designed to leverage the existing local agency property tax collection process and
minimize incremental staff effort. More recently, some state programs have been authorized to take on some
of these roles (e.g., Colorado, Rhode Island), freeing local governments of these responsibilities (McCarter
2017). In some cases, state programs or third parties have been given authority to levy assessments and
collect payments. Some programs have begun allowing participants to repay lenders directly, sidestepping
the tax collection process altogether while retaining the underlying delinquent tax assessment collection
mechanism (e.g., Texas) (Heydinger 2017).38
• Timing of the funding process. The timing of recording assessments, placing liens and disbursing funds
can have significant consequences for a project. Some programs may have requirements, possibly codified
in legislation, that project work be complete before the assessment can be recorded, before funds can be
disbursed, or both. Either of these scenarios could make a C-PACE project untenable. Commercial energy
efficiency projects could last three to six months or longer, especially in the case of new construction. If C-PACE
funds cannot be disbursed until work is completed, the contractor will need to front the money or the building
owner will have to secure bridge funding — which either party may be unwilling or unable to do. If a lien is
not recorded on the property during the construction period, it puts the lender at risk because they have no
security in the property during that time. This may deter lenders.
22
LESSONS FROM THE FIELD
Closed market models. Early C-PACE programs in California tended to be closed market models. More
recently, program sponsors are predominately launching open market models for a variety of reasons (see
discussion of relative advantages above).
Open market models. A number of programs, such as the statewide C-PACE programs in Colorado,
Connecticut, Rhode Island, Michigan, Utah, Texas and GreenFinanceSF in San Francisco, are using the open
market model. Almost all of these also allow owner-arranged financing (Utah Clean Energy 2014).
Timing issues. Some programs have managed workarounds for challenges with lien and fund
disbursement timing. For example, the Connecticut Green Bank found that construction period risk was a
major barrier for lenders. Originally the C-PACE statute in Connecticut only allowed the lien to be recorded on
the property once project work was completed. In response, the Green Bank decided to use its own funds,
raised through the Regional Greenhouse Gas Initiative, to fund projects, with the goal of eventually selling
the C-PACE loans to capital providers and revolving the money for additional loans (Lombardi 2014).
Pooling. In Phase 1 of Ann Arbor’s C-PACE program, the program was capitalized using bond funding with
a pooling approach. Once the program administrator had pooled $540,000, it issued a bond. Organizing
sufficient project demand to issue the bond took one and a half years, highlighting a limitation of the
pooling approach (Utah Clean Energy 2014). The pooling model might be quicker for larger projects (which
may offer larger dollar volume for bond issuance), but may cause significant delays for smaller projects.
2.1.4 Credit enhancement
A number of programs (e.g., New York, San Francisco, Ann Arbor, Connecticut, and Sonoma County) have
chosen to provide a credit enhancement for their programs (Utah Clean Energy 2014). Broadly defined, credit
enhancements are tools that offer lenders protection against losses if a borrower defaults on its obligation or is
delinquent in payment (SEE Action 2014). In return, lenders may offer a lower interest rate or may be willing to,
for example, use more flexible criteria in qualifying an applicant. C-PACE programs have used a number of credit
enhancements:
• Debt service reserve fund (DSRF). A DSRF is a pool of funds designed to cover a lender when a borrower is
delinquent on payments. Once payment is made, funds are returned to the debt service reserve fund. San
Francisco, for example, offers a DSRF equal to 10% of the assessment, made possible through an earlier
federal grant.
• Loan loss reserve (LLR). LLRs are pools of funds that lenders can tap to recover some portion of losses in the
event of a default. The Energize New York C-PACE program has a $1 million LLR.
• Gap financing. The Lean & Green Michigan C-PACE program has worked with Michigan’s Economic
Development Corporation to provide “gap financing” to help potential participants who have a lender
interested in their project but who do not have adequate credit or collateral (Utah Clean Energy 2014).
• General or moral obligation. Placing a general or moral obligation on bonds used to capitalize C-PACE
projects basically gives the lender (the bondholder) a payment guarantee by the issuer. It may improve the
credit quality of the bonds or the loan, but it counts against the government’s debt limits and can impact the
government’s credit (DOE 2013). This is rarely done in C-PACE programs.
Some programs may build up reserves for a credit enhancement (e.g., through fees), while others may use grant
money or partnerships to offer them. For lenders, credit enhancements can make a C-PACE program or individual
project more attractive. Administrators of self-financed programs may use them as a tool to manage the risk that
participants will be delinquent or default on their C-PACE obligations. Credit enhancements are not a requirement
to implement a C-PACE program.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
23
2.1.5 Interaction with existing incentives
Utilities in most states run energy efficiency incentive programs that offer rebated or free energy audits and other
energy measures. These audits can help in the initial stages of a C-PACE project. Incentives can help buy down
project costs, making projects more attractive and potentially making it easier for projects to pencil out as cash
flow-positive, which is often important for the property owner, or may be required by the program.
Some C-PACE programs, such as GreenFinanceSF in San Francisco and SCEIP in Sonoma County, coordinate
closely with utility incentive programs or encourage participants to use these programs (Utah Clean Energy 2014,
Clean Energy Solutions 2016). Partnering with utility programs can be a significant channel for marketing the
C-PACE program. Additionally, the cost-effectiveness tests used to qualify efficiency measures for utility incentive
programs and quality assurance/quality control steps taken by these programs could be useful for C-PACE
programs.
LESSONS FROM THE FIELD
C-PACE programs incorporate outside incentive programs in different ways.
For example (Utah Clean Energy 2014):
• Connecticut - Utilities offer free commercial-grade audits.
• Rhode Island - C-PACE program administrator Sustainable Real Estate Solutions (SRS)
collaborates closely with National Grid, the largest utility in the state, to coordinate with
the utility’s incentive programs (SRS 2017).
2.2 What and who can qualify for the program? How can they be qualified?
What is this?Who can do this? What are the tradeoffs?
Qualification guidelines determine
which properties, building owners
and projects qualify, and what
improvements are eligible for
C-PACE financing. Capital providers
may use additional criteria
– financial underwriting – to
determine whether or not to lend
for a specific project.
Program administrators determine
if projects are qualified for C-PACE
financing based on enabling
legislation, program guidelines,
and contractual agreements with
the program sponsor. Capital
providers financially underwrite
projects.
Qualification criteria could impact
other aspects of a C-PACE program
(e.g., if non-energy measures like
wind hardening are allowed, it
could impact how project savings
are approached). Underwriting
approaches across programs tend
to be similar, but flexibility in some
rules may allow more access to
C-PACE funding with potential
impacts on overall performance of
the C-PACE portfolio. Using a third
party for technical and financial
underwriting could reduce C-PACE
program staff needs.
Program qualifications fit into three categories: 1) qualifying properties, 2) qualifying building owners and projects,
and 3) qualifying improvements (or eligible measures). Program sponsors may want to focus on a target category
of properties, may be required to specify program qualifications for projects and building owners, and will need to
determine eligible measures.
24
2.2.1 Qualifying properties
Enabling legislation and C-PACE program requirements tend to be flexible with regard to what types of properties
may participate. However, commercial buildings vary significantly, which could have implications for program
participation. Properties may differ by:
39 Defining building classes is a term of art: Each class is generally defined in relation to other buildings in its market and in relation to buildings in other classes (Golden 2013).
Class B properties are one level below Class A properties. They are not quite as new or as well maintained as Class A properties and may be located in less attractive areas.
Class C and Class D buildings are older, have deferred maintenance, and are located in less desirable areas.
40 MUSH stands for municipalities, universities, schools, and hospitals. The authors are unaware of any publicly-owned buildings that have used PACE financing. Properties
leased by public entities may be eligible for PACE financing.
• Property size. Commercial real estate investors
often categorize properties by size. Although most
C-PACE programs have no restrictions on property
size, property size may correspond to project size
and larger projects may be more attractive to
investors and involve manageable transaction
costs.
• Business type. PACENation reports C-PACE
investment volumes for 12 types of businesses
(e.g., office, mixed use, retail, industrial, healthcare,
hospitality, multifamily). Different types of
businesses tend to rely more on C-PACE in different
parts of the country. For example, to date in
the West most C-PACE investment has gone to
healthcare, retail and office buildings, whereas in
the Southeast nearly 95% of C-PACE investment
has been in retail and multifamily buildings
(PACENation n.d.).
• Property class. For office buildings, which have
seen the most C-PACE investment to date (see
Figure 2-1), property class could mark different
levels of risk and return and may correspond to
differing levels of demand for C-PACE. Properties
are often categorized into three or four classes
(Class A through Class C or D) based on building
age, tenant income, location, and other factors
(Reality Mogul 2013). Class A, for example,
includes properties with the newest buildings in
more attractive areas than properties in other
classes. According to Brian McCarter at SRS, a
significant opportunity for C-PACE lies in Class B
and C properties39 that often have pent-up demand
for capital intensive energy consuming equipment
replacement, but lack the ability to self-fund the
upgrades.
Categories can range from small commercial buildings to large industrial facilities to multifamily housing to
MUSH40 to agricultural buildings.
C-PACE DOLLARS FUNDED BY BUILDING TYPE
Figure 2-1. C-PACE investment by building type. A wide variety of building types use C-PACE for energy improvements; most C-PACE
dollars are invested in office buildings. Source: PACENation, accessed December 5, 2017.
Differences in building size and type can have implications for C-PACE program qualification. Different business
types may be focused on different energy efficiency measures. For example, owners of a retail space may be
interested in a lighting control system, whereas an agricultural property owner may be focused on motors and
variable-speed drives. Finally, certain classes of office buildings (Class B and C properties) may have more need
for building upgrades, and thus more demand for, C-PACE than other classes. That could also have implications for
underwriting and lender interest.Total financing ($, millions)Office
$100
$75
$50
$25
$0 Mixed Use Retail Industrial
C-PACE DOLLARS FUNDED BY BUILDING TYPE
Healthcare Other Hospitality Multifamily Agriculture Services Education
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
25
2.2.2 Qualifying building owners and projects
Programs may have one set of standard criteria to qualify which buildings and projects are eligible to participate in
a C-PACE program. Capital providers may have their own additional criteria to evaluate feasibility, which may vary
by project. Broadly speaking, program requirements for building owner and project eligibility tend to fall into a few
general categories of requirements. Some requirements may be laid out in the enabling legislation For example,
the program verifies that the building is located in the special assessment district and confirms the applicant is
legally eligible to participate in the program.
Common requirement categories for qualifying building owners and projects include:
41 Although administrators often ask that the DSCR be considered, an actual number is not typically mandated.
42 However, increased NOI is not the only reason for using C-PACE and not the only reason that building owners and managers invest in energy projects. George Caraghiaur, a
Senior Fellow at PACENation, cites the example of lighting for a parking lot where security concerns may dictate the need for an investment rather than a desire for energy bill
savings (Caraghiaur 2017).
Consent. Some form of mortgage holder consent or
acknowledgment is typically required, with conditions
varying significantly from program to program.
Ownership. Proof is required that the applicant is the
building owner, which may be addressed through a title
search. All owners must agree to the arrangement, and
all owners may have to sign required documents.
Current on obligations. The owner must be current
on taxes, mortgage payments, and potentially other
obligations (e.g., utility bills). Some programs require
a look-back period (e.g., no mortgage payment
delinquencies in the past two years).
No outstanding grievances. The building owner must
not be in bankruptcy, the building must not be in
foreclosure, and there should be no involuntary liens
on the property. Some programs may have a look-back
period for this requirement.
Financial limits. In open-market programs where
funding is coming solely from third party, private capital,
capital providers, providers are generally given broad
responsibilities to financially underwrite transactions.
However, program administrators may set minimum
financial limits to verify that C-PACE participants are
able to repay their C-PACE obligations and to ensure
that the participant has sufficient collateral to cover
losses in the case of a default. Financial limits for PACE
underwriting protocol vary based on what decision
makers believe is in the best interests of consumers
and may include the following:
• Debt-Service Coverage Ratio (DSCR). The DSCR is
the ratio of a property’s cash flow to its debt obliga-
tions due in the coming year. Properties with a DSCR
greater than one should be able cover their current
debt obligations (Investopedia n.d.).41
• Combined loan to value ratio (CLTV). CLTV is the total
amount of debt secured by the property (including
the PACE assessment), divided by the property value.
Program guidelines may restrict projects from exceed-
ing a certain combined (i.e., including other debt
secured by the property) loan-to-value ratio, often
between 80% and 100% (DOE 2013).
• Assessment to value ratio. This ratio is the dollar
value of the PACE assessment to the assessed or
appraised value of the property (DMME 2015).
Virginia’s Department of Mines, Minerals and Energy
(DMME) developed a guide that suggests the ratio be
no more than 20% (DMME 2015). Texas also uses
20%, and Connecticut and New York use 35%. Lower
ratios may make it harder for smaller building owners,
e.g., small business owners, to qualify projects.
Expected savings. C-PACE qualifying guidelines may
include stipulations that the project demonstrate a
reduction in energy consumption or production of
renewable energy over baseline conditions, the term
of the assessment not exceed the weighted average
effective useful life (EUL) of the project, or both. Some
programs encourage or require a project’s savings-to-
investment ratio, or “SIR”, be greater than one – i.e.,
the total estimated cost savings exceed total payments.
This can have two primary benefits:
• Increases net operating income (NOI). NOI is a prop-
erty’s revenue minus its operating expenses, including
utility expenses and property taxes. If utility bill savings
from a CPACE project are greater than increased prop-
erty taxes, NOI will increase, all else being equal. NOI
is used to determine a property’s capitalization rate, or
rate of return. A higher NOI results in a higher capital-
ization rate, which makes the property more attractive
to potential buyers.
• Helps facilitate mortgage holder consent.
Demonstrating to mortgage holders the potential for a
C-PACE project to generate savings in excess of annual
operating expenses (thus increasing the building’s
NOI42) provides an incentive to consent to the project.
Even for projects in which expected savings do not
exceed increased property taxes, C-PACE’s long terms
will probably impact NOI less negatively than other
financing options. As a general principle, however,
mortgage holders will need to be convinced that energy
savings and utility bill projections have been produced
by a professional and unbiased source.
26
2.2.3 Qualifying measures
43 Given the transferability of the C-PACE obligation to a subsequent building owner, enabling legislation generally limits qualifying measures to those that are affixed to the
building.
44 For more on TRMs, and a reference on available TRMs across the country, see the SEE Action Guide for States: Guidance on Establishing and Maintaining Technical
Reference Manuals for Energy Efficiency Measures.
45 Note that some of these measures, e.g., storm strengthening, may increase project costs but provide no energy savings. Electric vehicle charging stations could actually
increase a building’s energy consumption. This should be considered when developing project energy and cost savings guidelines.
46 A measure’s weighted useful life is the “length of time a measure is expected to be functional” (Hoffman et al., 2015). When multiple measures are included in a project, the
weighted average better reflects the EUL of the project.
The original rationale for allowing PACE was the public benefits resulting from renewable energy and energy
efficiency projects. Although enabling legislation establishes general categories of what may be financed, program
administrators or local governments generally provide guidance on the measures that qualify and may offer a
list of eligible measures.43 The U.S. Department of Energy (DOE) suggests that “eligible measures should be
restricted to those that have a solid track record and, where possible, independent verification of their ability to
save energy. The types of eligible measures can be expanded over time as the program administrator develops
more knowledge and gains experience in evaluating projects and their actual associated savings” (DOE 2013).
Where available, a state’s or utility’s technical reference manual (TRM) may provide a foundation for PACE
programs to establish energy savings potential for a variety of different measures.44
More recently, enabling legislation has provided for other measures – including resilience measures – such as
water conservation, cool roofs, electric vehicle charging stations, energy storage, microgrids, combined heat and
power systems, seismic retrofits, wind hardening and storm strengthening.45
LESSONS FROM THE FIELD
Qualifying projects and measures. Commercial building owners are focused on cash flows. Therefore,
C-PACE programs may focus more on a project’s overall forecasted savings than on the efficiency of
individual measures and might be open to any measure that saves energy. For example, Connecticut’s
C-PACE program requires a project’s SIR be greater than one (see Section 2.3.2) (Connecticut Green Bank
2016). The proposed project’s weighted average effective useful life (EUL) is the critically important criterion
and determines maximum financing terms.46 Although participants can choose a term that is shorter than
the weighted EUL, the technical administrator of Connecticut’s program (SRS) notes that building owners
typically select the maximum finance term given cash flow impacts C-PACE (McCarter 2017).
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
27
2.3 How are energy cost savings and other impacts estimated and documented?
What is this?Who can do this? What are the tradeoffs?
Energy savings and energy cost
savings (the resulting cost savings
from reduced energy consumption)
associated with C-PACE projects
can be estimated during the
project planning phase and tracked
once the project is completed.
Usually the focus of such analyses
are energy cost savings, which
are calculated by first determining
a baseline energy consumption,
and projecting the energy savings
and associated cost savings
from the proposed measures
to be implemented. Once those
measures are installed, actual
energy consumption and energy
cost savings can be verified against
projections.
Contractors, program
administrators, or third parties like
Energy Service Companies (ESCOs)
and engineering firms can estimate
and track savings.
Energy savings are generally a goal
of the public policy behind C-PACE
programs. They are sometimes
statutorily required in order to
meet the public purpose defined
by PACE-enabling legislation and
may be important for underwriting
and lender consent. However, ac-
curately assessing energy savings
can be challenging, adds some
costs to any project, and may have
limited value to building owners
that have already implemented the
project. On the other hand, energy
cost savings assessments, as well
as assessments of other benefits,
can document the value of future
investments by property owners
and encourage policy maker,
contractor, and lender support of
C-PACE funded efficiency projects.
To date, most C-PACE projects are eligible for PACE financing because they are expected to reduce a building’s
energy use which in turn should lead to cost savings on the utility bill and form the basis for the cost-effectiveness
of C-PACE projects.
The following discussion focuses on the basics of estimating energy cost savings before or after a project is
implemented. However, it is important to note that there are other benefits associated with efficiency investments
for building owners, tenants, the servicing energy utilities, and society as a whole – and these also can also be the
basis for implementing C-PACE programs and projects. These other benefits can also be documented, although
usually not as easily as energy cost savings. Other benefits include lower water costs, increased property values,
and higher rents and better retention (landlord benefits); improvements in comfort and productivity (tenant
benefits); avoided transmission and distribution costs, energy price and reliability effects (utility system benefits);
and local economic development and jobs (societal benefits).
Savings for renewable energy projects are based on metered energy generation, usually electricity generated
from a solar photovoltaic (PV) system. Projecting cost savings for renewable energy projects is generally more
straightforward, with the output of a PV system primarily only dependent on the number and ratings of selected
PV panels and their location, orientation and shading. With the amount of electricity being reliably predictable, the
main variable is how much electricity will be displaced from building consumption and how much will be sold back
to the utility.
In contrast, an important challenge to estimating the impacts of efficiency projects is that energy savings and
non-energy impacts resulting from efficiency actions cannot be directly measured. For example, the true impacts
of efficiency projects are the difference between the amount of energy used relative to the amount of energy
that would have otherwise been used (the baseline) had the building not had efficiency measures installed.
This baseline is called the counterfactual scenario. In practice, it is impossible to observe how much energy the
28
Audits may include a review
of energy consumption, a
site assessment, an energy
and cost analysis, and a
summary report of findings and
recommendations.
C-PACE program participants would have used had they not been in the program “because at any given time a
participant must either be in the program or not” (SEE Action 2012).
In addition, while it is difficult to reliably estimate the difference between current energy use compared to what
would have been used in the absence of an efficiency project (the counterfactual baseline described above),
cost savings, estimated relative to the borrower’s pre-project energy costs, can be even more difficult to project
with precision, given the relative unpredictability of energy prices over time.47 Since there is uncertainty in what
would have happened absent efficiency improvements, documented impacts are always estimates. This in
turn indicates that there must be a balance between the reliability of energy impact estimates and the cost of
obtaining them.
Energy cost savings are important because they may help determine the extent to which energy savings may
place borrowers in a better position to make C-PACE repayments48 and can increase NOI.49 Some programs use
projected cost savings to underwrite projects, and existing mortgage holders may be convinced to grant consent
for a C-PACE project based on the benefits of positive cash flow generated by a project through cost savings.
Estimation and documentation of energy savings and energy cost savings present three key decisions for
C-PACE program design:
• Should energy audits be required?
• Should some level of projected savings be required for eligibility?
• Should savings impacts be documented and, if so, how?
47 Assumptions can be made regarding fuel price escalation over time for underwriting purposes, but such estimates often vary from reality as prices actually change.
48 Savings estimates should be placed in the context of a borrower’s overall financial picture, as many other factors can contribute to a borrower’s ability to repay a loan
obligation, such as overall debt levels relative to net income.
49 Using third party estimates in addition to contractor estimates can support program credibility, consumer protections, help prevent any backlash against program sponsors
and help increase trust.
50 Energy audits are sometimes called “energy assessments” or “energy studies” (Baechler, Strecker and Shafer 2011).
51 Energy audits may be required in C-PACE enabling legislation.
2.3.1 Energy audits50
Engineers use a building’s baseline energy consumption to estimate
what energy savings and utility bill savings a project will generate. To
determine the baseline energy consumption, an audit is helpful.51
Audits may include a review of energy consumption, a site assessment,
an energy and cost analysis, and a summary report of findings and
recommendations.
Audits can range from assessment of a single system in a building (for
example, for a project involving only lighting efficiency and a minimal
capital investment) to a rigorous, whole-building analysis, which could
involve a major capital investment. The American Society of Heating,
Refrigerating and Air-Conditioning Engineers (ASHRAE) categorizes three
levels of audits. Level I includes assessing energy bills and a limited
site visit to inspect the building. Level II includes more refined surveys
of energy use and more extensive analysis of building characteristics,
costs, energy use and potential energy savings. Level III includes Level
I and II activities and adds equipment monitoring, more extensive data
collection, and more comprehensive engineering analysis (Baechler,
Strecker and Shafer 2011). Comprehensive audits like the ASHRAE
Level III audit may be considered “investment-grade audits” (Pacific
Northwest National Laboratory 2011).
Many C-PACE programs require or recommend some level of ASHRAE
audit (Utah Clean Energy 2014). Some, such as GreenFinanceSF and
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
29
the Florida Green Finance Authority, require lower-level ASHRAE audits for projects under $100,000 (Clean Energy
Solutions 2016). For its technical standards, the Texas PACE Authority uses the Investor Confidence Project’s (ICP)
Energy Performance Protocols (EPP) for Standard and Large Commercial Facilities for the uniformity that EPP can
offer across the state and even across the country (Keeping PACE in Texas n.d.).52 Other programs are flexible as
to what type of audit is done, and some determine the necessity of an audit on a case-by-case basis (Utah Clean
Energy 2014, Clean Energy Solutions 2016).
Generally, the cost of an audit depends on audit quality, comprehensiveness of the audit, the size of the building
and other related factors. Comprehensive audits may be inappropriate and unaffordable for smaller, less
sophisticated projects. Outside parties such as contractors, ESCOs, and engineering firms perform audits. Some
programs include or recommend an independent third party review of the audit and cost estimates, which may
reassure mortgage holders who must consent to allowing the C-PACE project. For example, the Texas PACE in a
Box guidelines require a third party that is “wholly independent from” the property owner, lender, or energy or
water provider to review the baselines and savings projections (Keeping PACE in Texas n.d.).
52 Virginia’s voluntary underwriting guidelines also reference ICP protocols (DMME 2015). For more information on the ICP or EPP, see http://www.eeperformance.org/ and
http://www.eeperformance.org/uploads/8/6/5/0/8650231/energy_performance_protocol_-_standard_commercial_v1.0.pdf.
53 Set the PACE St. Louis, Lean and Green Michigan, and Energize New York all require the SIR to be greater than one (Utah Clean Energy 2014).
54 For example, Connecticut’s C-PACE program requires a SIR greater than one. Connecticut’s enabling legislation requires participants to obtain an energy audit. Wisconsin’s
enabling legislation requires that property owners obtain a guarantee of SIR > 1 from the contractor or engineer for projects over $250,000 (Wisconsin State Legislature
2012).
55 Charlene Heydinger of the Texas PACE Authority notes that, for smaller deals with less sophisticated borrowers, all practices that offer some consumer protections may reduce
the fiduciary risk posed to program sponsors.
56 Some programs allow seismic resiliency measures or storm strengthening, neither of which generate energy savings but which do add costs (and benefits) to a project.
2.3.2 Savings-to-investment ratio (SIR)
Some programs require a minimum “savings-to-investment ratio” (SIR) in order for a project to qualify. These ratios
typically require that the level of projected cost savings from a C-PACE project be sufficient to support repayment
obligations – that, is the SIR must be at least 1.0.53 Some programs require projected savings to exceed
repayment obligations by a predefined amount.54
When contemplating whether to incorporate SIR ratios into program design, several factors may be worth
considering. First, from an underwriting standpoint, there is no formal evidence to date that SIR requirements
correlate to improved loan performance, though having an independent party-calculated SIR that is presented to
the owner and mortgage holder falls into the category of responsible due diligence.
Second, from a consumer protection standpoint, most C-PACE deals are typically relatively large transactions with
relatively sophisticated borrowers.55 Such borrowers may have a number of reasons to make energy improvements
that are not fully captured in the project financials (e.g., occupancy comfort). Therefore, C-PACE programs may
wish to consider giving borrowers the ability to move forward with a project regardless of whether the SIR is greater
than one. A program could require only disclosure of the SIR, without making SIR > 1 a requirement of financing
eligibility. Finally, for programs that allow measures beyond energy efficiency and renewable energy (e.g., seismic
retrofits and storm hardening), minimum SIR requirements may not work or may need to be modified to address
these other public safety benefits.56
2.3.3 Documenting energy savings and other impacts from C-PACE: Evaluation, Measurement and
Verification (M&V) of savings
Building owners, investors and existing mortgage holders may want to ensure that the energy savings undergirding
the economics of C-PACE projects are actually realized (or potentially exceeded), and program administrators
may want to measure and track progress toward their C-PACE program’s energy and energy cost savings goals.
Energy savings can be verified through measurement and verification (M&V) — i.e., verifying that installed
measures perform as expected. Furthermore, documented track records of positive savings could attract more
participants and demonstrate to other stakeholders the cost-effectiveness of C-PACE. Thus, C-PACE programs may
include an evaluation, measurement, and verification (EM&V) component for determining the impacts, and cost-
effectiveness, of individual projects or programs as a whole.
30
For efficiency, EM&V is a process of assessing an energy efficiency
program, including applying M&V and other methods to estimate
program impacts – most typically energy and energy cost savings.
However, EM&V can also include assessments of non-energy impacts
such as avoided air pollution and job development.
EM&V methods for energy savings include (Franconi, et al. 2017):
• “… M&V methods applied at the building level, with results
expanded to the program level.
• The use of deemed savings values, with installations and
key parameters verified by the evaluator, but without direct
measurement of site performance (thus deemed savings is not
considered a true M&V approach) [deemed savings method].
• Analysis of consumption data for program participants and a
comparison group to determine savings for the program as a
whole, and not necessarily for any individual facility or measure.
[comparison group method].”
To determine avoided air pollution and water savings, similar methods to
the ones listed above for energy savings can be used by either directly
assessing changes in water use or with the application of factors that
simply convert energy savings to avoided air pollution. For other metrics
such as those related to economic development, survey-based and
structured expert judgment approaches are most commonly used.
Which EM&V method is appropriate for a project or program may
vary depending on a number of factors, such as policy objectives,
access to data, available budget, desired accuracy of the estimated
impacts, which impacts are to be assessed, the time frame of the
evaluation, and types of measures included. For example, to show
how installed improvements are performing over time, San Francisco’s
GreenFinanceSF program requires participants to use Energy Star
Portfolio Manager, a free energy consumption tracker. Customers with
more than 200 kW demand must also participate in PG&E Interact
Services, a free service that monitors consumption on a near real-
time basis. The City of San Francisco may access consumption data
to “analyze project performance and gauge program effectiveness”
(data accessed remain confidential) (GreenFinanceSF n.d.). In another
example, the Connecticut Green Bank has funded whole-building data
collection and project performance M&V for the state’s C-PACE projects
since 2013.
Evaluation is the typical term
associated with assessing
programs (and program
portfolios and policies).
Measurement and verification
(M&V), which involves methods
associated with assessing
project and individual
measure impacts, uses
site data collection and
measurements. M&V is also
one way that programs are
evaluated. For example,
M&V can be applied to a
sample of projects, and the
results extrapolated to the
entire program population of
projects. EM&V is often used
as a catchall for all types of
impact, process, and market
evaluations, but is also
sometimes associated only
with impact evaluation, which
includes the market impact
portion of market evaluations.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
31
3. STAGE 3: Program launch
57 Three specialty PACE capital providers advised the authors that engaging capital providers before finalizing legislation and program rules will improve usage of the program.
The benefits of C-PACE – e.g., no upfront costs, long
terms, transferability – are discussed in the Executive
Summary and the Introduction of this report. However,
regardless of whether program sponsors will assume
program administration responsibilities or plan to retain
a third party do so, sponsors should quantify the costs
associated with setup and ongoing operations, and
consider options to recover such costs. This section
focuses on near-launch considerations and costs that
need to be covered after the program’s launch — when
the program begins operating and actively financing
projects.
In addition, this section identifies key stakeholders that
need to be engaged and offers strategies for engaging
them. It will also be important to solicit continual
feedback from stakeholders and incorporate that into
ongoing program improvement.
3.1 Which stakeholders are essential to engage?
What is this?Who can do this? What are the tradeoffs?
Key stakeholders who need to
be engaged in C-PACE programs
include community leaders,
municipalities, building owners,
capital providers, contractors,
utilities, real estate agents,
environmental advocates, and
mortgage holders. Engagement
will be different for different
stakeholders, but generally
includes outreach, general
promotion, marketing, training, and
technical assistance.
Stakeholder engagement is
generally done by the entity
responsible for setting up a C-PACE
program (i.e., sponsor), the C-PACE
program administrator (if different)
and, potentially, capital providers.
Some engagement responsibilities
may be delegated to third parties.
Stakeholder outreach, education
and engagement can be time-
consuming and demanding. It
can also increase acceptance
of C-PACE by mortgage holders,
participation by local governments,
and project volume. Engagement
is crucial to closing on projects and
achieving program goals.
Although this section is included in the “Launch” stage, engaging stakeholders is important at every step of the
C-PACE program lifecycle, from developing legislation,57 to setting up the program, to ongoing program operations.
Stakeholder engagement is essential to building up a C-PACE program, particularly since C-PACE financing is less
well known than other types of financing for commercial properties. Such outreach can be costly in terms of staff
time and challenging in terms of reaching and convincing target audiences. Program sponsors must decide who
to engage and how to engage them. Table 3-1 outlines stakeholder engagement strategies that C-PACE programs
have used.
3
32
Table 3-1. Examples of C-PACE program stakeholder engagement strategies 58
Engagement strategies
Customizable collateral
These are informational materials such as short
videos, fact sheets, case studies, and frequently
asked questions.
Website
A program website can be a central location for
outreach, materials, and program processes such
as applications. Participating governments can also
promote C-PACE on their websites.58
“Lunch and learn” events
for trade associations:
Audiences include local government professionals,
economic development officials, architects,
commercial building owners and managers, legal
professionals, financial institutions, and chambers of
commerce.
Traditional marketing methods
These include press releases, direct mail, email
marketing, content marketing, and event booths at
conferences and trade shows.
Meet and greet events
for contractors and lenders
Contractor workshops, trainings, and other
stakeholder conferences and events
Either piggy backing on other events for contractors
or hosting stand-alone events for C-PACE outreach
Social media Digital newsletters
Dedicated staff assignments
Designated staff can dedicate a portion of their time
to outreach and marketing.
Tax bill inserts
Because C-PACE is generally repaid on the property
tax bill, some programs have used information inserts
with property tax bills to promote the program.
Strategic partnerships
An example is partnering with utility incentive
programs.
Informational events
for potential participants
For many state and local governments interested in offering C-PACE, the formation of an advisory board, task
force, or similar decision-making body is a common next step once state enabling legislation is passed. Whether
a state wants to pursue a statewide model or a local government is contemplating launching its own C-PACE
program, a decision-making body is valuable to navigating the decision points preceding program launch. The
primary purpose of a C-PACE decision-making body is to expand upon enabling legislation, build out program
guidelines, make decisions related to program administration responsibilities, and conduct the entire process with
opportunities for stakeholder input to ensure long-term success.
A decision-making body may be named in state enabling legislation (e.g., Colorado’s New Energy Improvement
District Board), assembled at the discretion of a state or local executive (e.g., Utah’s CPACE Advisory Committee),
or convened through a private sector champion (e.g., Texas’ Keeping PACE in Texas). Decision-making bodies may
be composed of state and local officials, local banks and financial institutions, building owners, contractors, and
prospective capital providers and program administrators.
58 That is, if the participating government is not the program administrator. In that case, the program should already be on the government’s website.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
33
Decision-making bodies may be assembled to achieve a single goal such as selecting a program administrator
and then disbanded. These bodies may also be assembled to exist in perpetuity to serve as a mechanism for
responding to market concerns or opportunities, and thereby have the ability to quickly initiate program changes
when warranted. In many states, PACE enabling legislation has been modified on multiple occasions, which
has been prompted by feedback gathered from a decision-making body. For example, Utah’s C-PACE enabling
legislation was modified by the Utah Legislature in 2017 after the Utah C-PACE Advisory Committee convened and
offered recommendations in 2016 (Cuan 2017a).
CONTRACTOR TRAINING
Contractor training is important for C-PACE programs to maintain program quality and reputation, especially
since many programs use contractor networks as a key means to promote C-PACE. Contractors can promote
the program and drive program volume, but misrepresentation of C-PACE could damage a program’s
reputation and potentially deter eligible projects. Before program launch, contractors should be trained
on what C-PACE is, its benefits, and the process. They should understand the underwriting requirements
and know how to educate building owners about C-PACE and its benefits (PACENation n.d.). Program
administrators and consultants have been used to train contractors (Clean Energy Solutions 2016).
For example, the SCEIP recognized early on the importance of contractor training. The SCEIP has partnered
with a local workforce development agency to provide trainings and recruit more contractors (SCEIP
2012). The program now offers monthly trainings for all of their contractors, often done by conference
call, including program updates. The trainings are also a way for program administrators to hear contractor
feedback on the program. The Connecticut C-PACE program has hosted monthly, half-day, in-person
contractor workshops for several years. These contractor education and engagement sessions have proven
effective to recruit contractors and to drive recurring project originations.
Each stakeholder has different roles in the program development process and is important to the process for
different reasons, so customized approaches to engagement are valuable. A few common approaches may be
helpful in engaging multiple stakeholder groups: basic marketing materials that introduce C-PACE financing and
explain the process and benefits, a website through which general and customized program information can be
accessed, and an advisory committee that enlists members from each group of stakeholders. For example, in
developing guidance on underwriting criteria, Virginia’s Department of Mines, Minerals and Energy sought input
from real estate, energy efficiency, banking, and local government stakeholders as well as others (DMME 2015).
Listed below, in order of which group may need to be approached first in the course of starting a C-PACE program,
are several stakeholder groups that are important to engage.
Community Leaders
Who are they?
Community leaders can include local advocates and industry representatives, particularly the real estate and
banking industries (SCEIP 2012).
Why are they important to the process?
They can raise awareness, build political support, and reach multiple stakeholders at an influential level.
Why should they be engaged?
Often programs need a champion. A community leader is a good candidate for that role.
What strategies have been used to reach them?
Strategies include direct outreach to local chambers of commerce, industry associations and representatives,
including hosting events such as luncheons to introduce them to C-PACE financing.
34
Local Governments
Who are they?
Local governments that vote to enable C-PACE in their jurisdiction are comprised of decision-makers and
administrative staff that will be required to implement parts of the C-PACE process (e.g., county tax offices). In
some states, local governments may also be required to set up a special assessment district (or districts) to
enable local building owners to use C-PACE. Administrative staff may be involved in a number of ways, such as
recording assessments and liens and collecting and remitting payments.
Why are they important to the process?
Generally, regardless of the administrative structure of the program, local governments must choose to
participate in C-PACE, either through opting into a state program, setting up their own program, joining other local
governments in an inter-local program, or working with private C-PACE providers. If, for example, a building owner
wanted to participate in C-PACE but the local government had no program, the local government would have to set
up a program or join an existing program in order to participate.
Why should they be engaged?
Local governments may be unaware of C-PACE and its benefits or may need to understand the benefits before they
are willing to implement a program. Depending on the structure of the program, staff may need to be receptive to
taking on new responsibilities and trained to ensure successful program implementation.
What strategies have been used to reach them?
Strategies include direct one-on-one outreach to elected officials and relevant staff members, stakeholder
meetings and information workshops.
Building Owners
Who are they?
Owners of commercial buildings that are currently in need of energy upgrades or may be in the future.
Why are they important to the process?
Building owners are the ultimate participants in the C-PACE program. They must understand the program and the
value proposition of C-PACE for the program to be successful.
Why should they be engaged?
To develop projects, building owners must: 1) know about C-PACE financing, 2) understand it, 3) be certain of its
benefits, and 4) get any needed help in the C-PACE process (e.g., assistance with the C-PACE program application,
project development, mortgage holder consent, and finding a capital provider). If building owners navigate
the process of securing capital without support from a C-PACE program administrator, it may lead to missed
opportunities. Engagement also allows program administrators to better understand the needs of building owners
in their jurisdictions and how their programs may better serve them.
What strategies have been used to reach them?
Customizable collateral (i.e., marketing media materials such as brochures) provides resources for building owner
questions. A website can introduce building owners to the program and help them learn about it. It can house the
customizable collateral, offer a place to complete process steps (e.g., an application), provide program updates,
and facilitate communication between potential participants and program administrators, capital providers and
contractors. Direct staff outreach can be valuable at any point in the process but may be crucial at some points
such as during project development or when obtaining lender consent.59 Depending on the market, traditional
marketing may reach building owners, but informational events and tax bill inserts may be a more targeted
approach. Strategic partnerships, such as with utilities or contractors, are perhaps the most common way for
building owners to learn about the C-PACE program.
59 Such outreach can be conducted by both the agency staff or more typically by a third-party program administrator.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
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Contractors
Who are they?
Contractors develop the technical plans for efficiency projects, install the qualifying energy measures and educate
property owners about C-PACE.
Why are they important to the process?
Contractors often maintain relationships with building owners and may know about potential unfunded projects
that C-PACE could facilitate (McCarter 2017). Also, ensuring that quality work is being done through the program
is important to attract more participants and maintain the reputation of the program.
Why should they be engaged?
Developing a network of registered and trained contractors can inspire confidence among participants, make it
easier for participants to find a contractor, and help control the quality of work being done through the program.
Some programs have leveraged contractor relationships and sales efforts to promote C-PACE programs.
What strategies have been used to reach them?
Workshops and trainings are often used to engage contractors, but events such as meet and greets can introduce
them to C-PACE financing and the local program. Websites can answer questions for contractors, such as where
the program is available and what measures are eligible, and can facilitate some process steps — for example,
signing up and getting registered with the program.
LESSONS FROM THE FIELD | STAKEHOLDER ENGAGEMENT, PART 1
Reaching out to local governments. As part of establishing the C-PACE District, Utah’s Office of Energy
Development will either reach out directly to local governments when building owners in that jurisdiction
inquire about using C-PACE to fund a project or use a point of contact furnished by the building owner. OED
will contact local government staff through an introductory email that brings their attention to the existence
of the program, explains how it works and some of the benefits, and directs them to more materials (Dutton
2016).
Contractor networks. Program administrators may use contractor networks to promote C-PACE.
Connecticut and other states have done this, leveraging contractors’ relationships with building owners and
knowledge of the market (SRS 2017).
• Connecticut’s third party technical administrator has developed a database of efficiency and renewable
energy contractors and regularly invites contractors it identifies as qualified to half-day workshops on
how C-PACE can expand their business. Over time, 25% to 30% of contractors that attend workshops
submit a C-PACE project application (SRS 2017).
• Contractor engagement is an ongoing effort. For example, Sonoma County holds monthly trainings or
updates, sometimes done by conference call (Clean Energy Solutions 2016).
• An overview of C-PACE for Virginia recommends empowering contractors to promote C-PACE, but
cautions that training must be high quality to ensure contractors do not misrepresent C-PACE financing
generally or the program details (Clean Energy Solutions 2016).
• The Utah Governor’s Office of Energy Development (OED) originally maintained the required pre-
approved contractor list per the state’s 2013 legislation but stakeholders found it challenging to enforce
(for example, approving general contractors vs. approving each subcontractor on a given job). As an
alternative, OED is considering a voluntary contractor registry instead to provide building owners with a
ready resource for project development (Cuan 2017a).
36
Utilities
Who are they?
Utilities often run programs that offer incentives for energy efficiency measures and free or rebated building
energy audits.
Why are they important to the process?
Utility incentives can bring down project costs, a benefit to all parties. Utilities may also provide free energy audits,
which can substantially improve project design.
Why should they be engaged?
Utility incentive programs may be leveraged to promote C-PACE as a tool for funding projects (e.g., potential
participants that inquire about a utility incentive, then learn about C-PACE financing), to initiate projects (e.g.,
through a free audit), and to provide a rebate to bring down overall project costs.60
What strategies have been used to reach them?
C-PACE programs have used direct outreach to utility program managers and strategic partnerships.
Capital providers
Who are they?
Capital providers are investors who furnish the capital for projects, either directly or by buying bonds issued to
fund the projects (see Section 2.1.2).
Why are they important to the process?
Capital providers make C-PACE projects possible and a C-PACE program sustainable.
Why should they be engaged?
Capital providers need to understand the C-PACE process, how C-PACE can benefit them (e.g., strong security),
and how to participate. Program administrators also want to ensure that participating lenders are qualified and
reputable. Also, by engaging capital providers early to verify the program design is tenable, decision-makers can
maximize participation and stimulate competition in the market.
What strategies have been used to reach them?
Lender prequalification, participating building owner referral and website announcements are some ways C-PACE
programs have engaged capital providers.
Existing Mortgage Holders
Who are they?
Existing mortgage holders are lenders who hold the outstanding mortgages on properties seeking to implement
PACE projects.61
Why are they important to the process?
Debt arrangements typically contain covenants that require the building owner to obtain consent from the first
mortgage holder in order to secure more debt through the property. Although C-PACE assessments may not
technically be considered loans or debt, as a special assessment their liens typically take priority over other
liens, even those assigned to first mortgage holders. Thus, many states require building owners to obtain written
consent from mortgage holders before a C-PACE assessment can be levied.
Why should they be engaged?
Where consent is required, mortgage holders are key to getting projects done. Even where mortgage holder
consent is not required, it is advisable to obtain it to build confidence and trust in C-PACE as a financing product.
60 C-PACE may also be attractive for utilities to support their energy reduction or distributed energy resource goals and to complement their demand-side management
programs. If they do not understand the benefits, utilities may oppose the establishment of PACE programs.
61 A number of different kinds of institutions hold mortgages on commercial buildings. These include (but are not limited to) local, regional, national and international banks,
credit unions, government entities (such as housing authorities and municipal development corporations), insurance companies and specialized lenders.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
37
Partners that understand C-PACE and efficiency help explain its benefits for mortgage holders. If mortgage holders
understand C-PACE, they can be strong supporters of the program; if not they can be strong opponents.
What strategies have been used to reach them?
Involving program partners in consent discussions and program development is a best practice. Program
administrators can explain C-PACE’s benefits such as increasing the building’s net operating income — and thus
its value — and that improved tenant cash flow may help make mortgage payments more timely and consistent.
Program administrators responsible for quality assurance and third-party project evaluators can give mortgage
holders confidence in what to expect in terms of energy savings.
LESSONS FROM THE FIELD | STAKEHOLDER ENGAGEMENT, PART 2
Mortgage holder consent. Charlene Heydinger of the Texas PACE Authority says that support of the lender
community for C-PACE is crucial. She notes that bank executives are members of chambers of commerce
and economic development commissions. Banks need to be brought in early to the program development
process to support, or at least not oppose, local C-PACE programs.
In 2013, PACENation surveyed PACE programs and consultants, senior mortgage holders, and investors on
mortgage holder consent for C-PACE projects (PACE Now 2014). The survey revealed important findings for
engaging mortgage holders:
• An internal champion at the lending institutions is an advantage for obtaining consent, and the PACE
community should cultivate a point person at financial institutions.
• Lenders reported a strong preference for projects that quickly increase a building’s NOI through energy
savings. In addition, a common reason for denial of consent was mortgage holders’ lack of expertise
in underwriting the cash flows from C-PACE projects. Therefore, furnishing the mortgage holder with
projected energy savings and cash flows comparing pre- and post-project forecasts may help in
obtaining consent. An audit and third party review of the projected savings also tended to be part of
successful requests for mortgage holder consent.
• Mortgage holders will have questions about the program that the program administrator or municipal
official may be best able to answer. For example: What are the mechanics of the assessment? What
happens in situations of nonpayment, delays in payment, and default (i.e., how is the mortgage holder
protected)? What rights does the mortgage holder have under a C-PACE arrangement? Unfamiliarity with
C-PACE was another common reason for denial, so involving a program expert in consent talks could be
valuable.
• Attending mortgage industry conferences and local government meetings, and publishing in industry
news sources, is helpful for outreach. Creating case studies highlighting benefits of C-PACE for mortgage
holders is also beneficial.
Other tips. PACENation’s “Start a C-PACE Program” webpage includes these tips:
• Some traditional marketing tools (e.g., billboards and other paid media) are not effective, targeted ways
to reach commercial building owners. Luncheons for industry groups are examples of more targeted
methods.
• When engaging commercial building owners, program administrators can prioritize by segmenting the
market into buildings with deferred maintenance issues, buildings with high energy consumption, and
building types that might otherwise be well suited for energy improvements.
• Although some specialty program administration firms offer web development services, there are
low-cost and even free web development platforms that allow users to build their own website without
knowledge of coding.
38
3.2 Ongoing operations and costs
What is this?Who can do this? What are the tradeoffs?
Ongoing operations are functions
and responsibilities that require
staff attention and cost money on
a continuing basis.
Depending on the task and
program structure, ongoing
operations are generally
managed by third party program
administrators, state or local
government agencies acting as
program administrators, local
governments and, sometimes,
lenders. Management of ongoing
operations can range from a local
government taking charge of nearly
all tasks, to local governments
performing only a few duties that
require no extra staff capacity, no
use of taxpayer dollars and no risk
to the treasury.
Depends on the function or
responsibility. Delegation to
third parties may enable C-PACE
participation by local governments
with insufficient capacity to
manage the tasks, but also means
less local government control on a
case-by-case basis.
Program sponsors will need to decide how to pay for both set-up costs and ongoing operations. Understanding the
demands (e.g., staff capacity, expertise) and the costs of ongoing operations (as well as set-up costs) is crucial
to program planning and decisions about choosing third party administrators or opting into a larger program (see
Section 1.2). The program sponsor must decide (within the constraints of the state’s C-PACE law) who will take
on responsibility for a number of ongoing tasks. Whether the sponsor takes on a given task — or whether it is
delegated to an outside party — may depend on budget, internal capacity, internal expertise, and views on the role
of government.
62 Some tasks can only be done by a local government.
63 For example, in Texas, local governments delegate the assessment collections to the project capital provider.
3.2.1 Ongoing operations tasks
Each task has associated costs as well as demands on staff. Entities responsible for launching a program
(e.g., state and local governments) need to assess ongoing costs and determine what activities make sense to
outsource and which may be better managed in-house.62 Broad areas of ongoing operations tasks include:
• Administrative processes - These are the tasks that need to be performed for the program to function, such
as application approvals, technical and financial underwriting, technical standards compliance, document
development and updating, marketing, customer service, and IT activities such as website development and
maintenance. They require staff capacity and may require some legal expertise (for development of some
documents such as contract templates) or technical expertise (for IT needs and engineering for technical
standards). Most can be done by state or local government agencies or third parties. Some C-PACE providers
(i.e., third-party administrators) offer turnkey services that include some or most of these functions.
• Funding - At a minimum, ongoing operations tasks associated with funding projects include servicing
C-PACE assessments (billing, collections, and remittances) and recording a lien on the property. These
tasks are generally performed by the local jurisdiction’s tax assessor and clerk’s office, although some
program administrators (e.g., joint powers authorities and some statewide program administrators) may have
authorization to conduct these tasks. More recently, in some jurisdictions capital providers have assumed
responsibility for some of these roles, such as billing and collections.63 When bonds are used, a set of tasks
and costs are brought into play that will require legal and financial expertise.
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
39
• Quality Assurance/Quality Control (QA/QC) - Some enabling legislation requires programs to state their
plans for QA/QC. Texas is one example (Keeping PACE in Texas n.d.). QA/QC ensures that contractors are
doing quality work. The process can help to instill confidence among participants and potential participants,
avoid complaints, and maintain the program’s reputation. It may include inspection of a contractor’s first
few C-PACE projects (or a subset of those), ongoing inspection of a portion of the contractor’s projects, or
a combination of these approaches. QA/QC is generally done by independent third parties. These parties
need to have expertise in building science to understand acceptable work quality.64 For example, in Texas
an independent, third-party consultant reviews baseline and projected savings calculations to confirm the
findings are consistent with the programs technical standards. A second independent third-party reviewer
confirms that the project was installed correctly and is operating as intended.
64 DOE suggests programs develop a QA/QC plan to guard against fraud and coordinate with utility incentive program QA/QC efforts, have mandatory measurement and
verification, and use licensed contractors that must submit building permits for measures that require them (DOE 2013).
65 Depending on the jurisdiction, local governments may charge significant fees for tax collection (Greater Cincinnati Energy Alliance 2017).
66 Third party administrator fees and all other fees should be fully disclosed to local governments and property owners.
67 The one-time fee in Texas is 1% for projects up to $5 million and 0.5% for projects above $5 million.
3.2.2 Ongoing operations costs
Who is responsible (and absorbs costs) for each of these tasks depends on how program administration is
structured and may also depend on how the program is financed. For example, programs funded through bond
issuances will generate transaction, legal and financial costs for each bond issuance. If the program is able to
issue bonds at a multijurisdictional or state level, economies of scale may make these costs more manageable
than what they might be for a local government program alone.
User fees are often charged to cover ongoing operations costs such as servicing, overhead (e.g., staff salaries,
rent, utilities, IT), title searches, costs of recording assessments, application processing, underwriting, closing,
funding assessments, and expenses to cover delinquencies or defaults.65 66 However, fees are only generated
once there is program participation, so they cannot provide initial start-up funding. Further, sufficient deal volume
will need to materialize before fees can begin to fund ongoing operations.
There are four basic structures for C-PACE participant fees (typical percentages in parentheses) (Martin Fadrhonc
and Kramer 2015):
• One-time fees as a percentage of the financed amount (0.2%-5%)
• Annual fees as a percentage of the outstanding balance
(0.25% to 3%)
• An “adder” to the interest rate charged on the assessment
(3% to 4%)
• Flat fees not charged as a percentage of the assessment or balance, such as application or title search fees
These structures may be used alone (e.g., Minnesota’s program adds 0.5% to interest rates but does not charge
other fees) or in combination (e.g., Texas charges a one-time 1% fee at closing and adds 0.25% to the cost of
the assessment on an ongoing basis).67 Because larger projects will produce more fee income (on a percentage
basis), some programs (e.g., Connecticut, Michigan, and Missouri) have declining fee schedules as the project
size goes up (Dutton 2016). Fees that program administrators charge may vary depending on the range of
services they offer. For example, full service program administrators (those that offer everything from contractor
management to coordination with capital providers to tools that evaluate project economics) may need to charge
more than those that only offer minimal services.
A balance must be struck between increasing fees, which could potentially dampen demand by making C-PACE
more expensive for program participants, and covering costs, especially in the case of lower deal volumes.
Besides charging participating building owners, programs may also charge fees to contractors for participation
and training, and may charge lenders fees for participation.
40
3.2.3 Program set-up costs
68 Clean Energy Solutions found start-up costs ranging from $225,000 (SCEIP) to $600,000 (Clean Energy Solutions 2016). MinnPACE’s low set-up costs are largely due to
using an existing efficiency financing infrastructure.
Program investment volumes need to be sufficient to pay ongoing fixed and variable costs but also to
repay program set-up costs — e.g., staff time spent on program development, building the program support
infrastructure, developing collateral, hiring staff, using consulting services — while making sure that financing is
still affordable enough to attract sufficient project volume to cover these expenses. The fact that programs could
take significant time to establish (and to begin generating fee revenue) should be taken into consideration when
contemplating setting up a program since funding for this stage will have to be secured beforehand. Higher fees
could also impact the ability of smaller property owners to participate. It is important for program reputation that
fees are transparent to participants and that program administrator fees are transparent to their clients, including
fees for added services such as use of a program administrator’s proprietary software.
Interviewees estimated program set-up costs to be between $250,000 to about $500,000, although one
program, Minnesota’s MinnPACE, reported minimal set-up costs.68 Funds to support start-up can come from
sources such as federal grants, foundation grants, corporate sponsorship, utility ratepayer funds and local
municipal general funds (Clean Energy Solutions 2016). Some programs have been provided with in-kind staff
time; others have had private program administrators take on much of the responsibility and cost for setup.
Some jurisdictions have competitively procured a third-party administrator early in the set-up process. Program
administrators procured in this manner are awarded exclusive rights to serve as the PACE administrator in that
jurisdiction, and perhaps some amount of funding, in exchange for developing and launching the program in
collaboration with the sponsor.
LESSONS FROM THE FIELD
FEES
Variable fee structure. Fees in the California First program vary based on the size and structure of the
project. There are one-time application fees (currently waived), closing fees, and service fees, as well
as ongoing administrative fees for billing, collection, disclosure reports, monitoring project funds, and
tracking delinquencies. The program notes that the fees “will be disclosed and agreed to prior to financing”
(CaliforniaFIRST 2016).
Cost categories. Chris Robbins of Clean Fund, a specialty PACE capital provider, categorizes costs covered
by fees into program costs (ranging from 1% to 2.5%) versus financing costs (ranging from 2% to 4%)
(PACENation n.d.).
PROGRAM SETUP
Utah. With the updates to the C-PACE program, the Utah Governor’s Office of Energy Development (OED)
is incurring direct set-up costs and has dedicated substantial staff time to design and develop the C-PACE
District, a state administrative function that is statutorily assigned to the office. OED recently selected
Sustainable Real Estate Solutions (SRS), to inform the program design process and develop customized
C-PACE materials to comply with Utah’s statute (Cuan 2017b).
Texas. Keeping PACE in Texas and the Texas PACE Authority, a nonprofit program administrator, invested
significant staff time in setting up the program. Local governments can join with minimal set-up and ongoing
costs. Local governments using the Texas PACE Authority as their program administrator have just three
obligations: 1) recording the lien on the property, 2) collecting past due assessments if that becomes
necessary, and 3) printing a notice of the assessment and including it with the property tax bill (the Texas
PACE Authority prepares the bill) (Heydinger 2017).
Minnesota. The MinnPACE program administrator, the St. Paul Port Authority, uses an existing energy
efficiency financing infrastructure from another program, which significantly reduced set-up costs. The
program reports virtually no set-up costs (Klein 2017).
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
41
C-PACE program development is a multi-step and
dynamic undertaking that ultimately can enable
those benefits. In the course of compiling this report,
several interviewees commented that there needs
to be more information available about C-PACE. This
report provides a new resource for those looking to
set up a C-PACE program.
Enabling legislation sets a framework and policy
within which a C-PACE program will be designed. The
framework potentially lays out:
• What program structure is possible (some
structures may be inherently more standardized
and offer undemanding routes for local
governments to participate in C-PACE);
• Which entity will be the program sponsor; and
• What decisions the sponsor will need to make.
This report lays out C-PACE program set-up decision points, options, and tradeoffs for program sponsors. These
decisions points (e.g., how to capitalize projects, how to qualify projects, and how to estimate and document
savings) comprise the guidelines that a program sponsor must adopt or develop.
4. Conclusion
C-PACE BENEFITS
C-PACE OFFERS A HOST OF POTENTIAL BENEFITS FOR STAKEHOLDERS
INCLUDING THE FOLLOWING:
• Requires no upfront costs;
• Can address split incentives;
• Provides good security for capital providers (through a senior lien and the ability
to transfer payment obligations to subsequent property owners);
• Can increase property value and net operating income for property owners; and
• Supports economic development — for example, C-PACE has supported nearly
$200 million of investment in California and over $100 million in Connecticut
(PACENation n.d.).
42
There are common misconceptions about C-PACE that stakeholders hope to dispel. Through the lessons learned
presented in this report, several misconceptions have been addressed:
• “Commercial PACE and residential PACE are the same.”
There are several important ways in which C-PACE differs, including larger construction scopes (which require
different timing structures for payment disbursal and lien placement), the commercial sector’s greater focus
on project cash flows – as evidenced in project qualification criteria (see Section 2.2.2), and the practice of
mortgage holder consent (see Section 2 and Section 3.1). The commercial sector also benefits from close
relationships between property owners and lenders.
• “For local governments, setting up a C-PACE program will require more staff capacity, funding and
expertise than they are likely to have.”
Section 1.2 shows that in all program structures, there are ways in which local governments can participate in
larger C-PACE programs, which take on many or most program responsibilities. That allows local governments
to participate while dedicating minimal resources. Sections 1.2 and 3.1 show the vital role of market actors
(e.g., third-party program administrators, capital providers) and how they can be instrumental in guiding
program set-up decisions and greatly reduce the burden for local governments.
• “It will be hard to find capital for C-PACE projects.”
Multiple interviewees noted that there is an abundance of capital providers eager to invest in projects
originating from well-crafted C-PACE programs, particularly specialty PACE capital providers.69
C-PACE is growing and evolving rapidly. As programs gain experience with various design aspects (e.g., program
structures, financing approaches, and M&V plans), more research into their advantages, disadvantages and
distinctions will be needed.
69 To better understand capital provider priorities for C-PACE programs, see Elements of a Well-Designed C-PACE Statute and Program to Attract Private Capital and Foster
Greater Transaction Volumes (see Appendix C).
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
43
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LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
45
APPENDIX A. How does it work? Project financing with
C-PACE
State and local governments frequently ask about two very
different processes: (1) how do we get a C-PACE program
started in our jurisdiction, and (2) how do projects get
financed with C-PACE? Lessons in Commercial PACE: The
Path from Legislation to Launch is intended to address the
first question regarding creation of a program. This appendix
briefly addresses the second question related to execution
of a project in terms of the project sequence and the role of
various actors.
Project Sequence: C-PACE-financed projects, like most large
commercial building projects, often takes more than a year
from initial conception to project completion. For a mature
program, securing and using C-PACE financing for a project
should not significantly extend the project timeline beyond
other financing options. The sequence of steps in a C-PACE
project can vary from program to program. The general
sequence is outlined in the figure to the right.
Project Roles: C-PACE financed projects are dependent
on multiple actors and transactions among those actors.
The figure below generalizes the typical C-PACE roles and
transactions.
ASSESSMENT PAYMENTS
PAYMENT REMITTED UPFRONT CAPITAL
Property
Mortgage
Holder
Property Owner
ContractorSponsor or
Tax Authority
Capital Provider
SERVICES RENDERED
Consent
Places
assessment
and lien
Senior C-PACE lien
Lien
Energy
improvements
May
assign lien
Repayments are remitted
back to the lender
Property owner pays for completed work via a
property tax assessment
A contractor completes the
PACE-eligible building improvement
Tax assessment placed on property and
financier provides project capital
A program administrator (public or 3rd party)
approves the project
PROJECT APPROVAL AND FINANCING PROCESS
46
APPENDIX B. Program structure quick glance and options
for local governments
Table B-1: The role of state government and options for local governments under various C-PACE
programs structures.
Typical Role of State PACE Program
Administration Local Options Examples
Statewide
Model
Adopts enabling
legislation; state entity
often serves as the
program sponsor, state
entity may select a
program administrator
and may potentially take
on some implementation
responsibilities
One statewide
administrator serving
one statewide program
Opt-in to statewide PACE
program
CT
State
and Local
Option
Model
Adopts enabling
legislation; state entity
may serve as the
program sponsor, and
otherwise participates as
market enabler
One administrator
selected by a state
entity serving each local
government program,
but allows for local
governments to start
their own program and
use own administrator
Opt-in to statewide
program, or create a
local PACE program
outside of statewide
program
MD
Strategic
State
Support
Model
Adopts enabling
legislation, state staff
may participate in
decision-making body
alongside private sector
to facilitate standardized
program offerings (e.g.,
standardized practices
and materials)
One administrator
is available to serve
each local government
program, but allows
for local governments
to start their own
program and use own
administrator
Administrator may be a
non-state entity well-
positioned to serve as
the de facto statewide
program administrator
(i.e., lacks formal state
designation)
Use standardized
program offerings (e.g.,
standardized practices
and materials), or create
a local PACE program
outside of statewide
program
TX
Limited or
No State
Support
Model
Adopts enabling
legislation
Multiple program
administrators serve
multiple jurisdictions; in
some cases there are
multiple administrators
serving one jurisdiction
Opt-in to regional or
joint powers authority
sponsored PACE
program, or create a
local PACE program
CA
LESSONS IN COMMERCIAL PACE LEADERSHIP: THE PATH FROM LEGISLATION TO LAUNCH
47
APPENDIX C. Links to resources specific C-PACE topics
Table C-1: Additional C-PACE and related materials.
SOURCE TITLE PROGRAM STRUCTURE (1.2.)CAPITALIZING PROJECTS (2.1.)PROGRAM QUALIFICATION (2.2.)SAVINGS (AUDITS, SIR, M&V) (2.3.)STAKEHOLDER ENGAGEMENT (3.1.)ONGOING OPERATIONS (3.2.)DOE Clean Energy Finance Guide, Chapter 12
SEE Action Network Credit Enhancement Overview Guide
DOE C-PACE Primer
Utah Clean Energy Commercial PACE Across the U.S.
PACENation How to Start a Commercial PACE Program
Securities and Exchange
Commission Municipal Bonds: Understanding Credit Risk
Virginia Department of
Mines, Minerals and Energy
Final uniform statewide financial underwriting
guidelines
SEE Action Network
Guidance on Establishing and Maintaining
Technical Reference Manuals for Energy
Efficiency Measures
Pacific Northwest National
Laboratory A Guide to Energy Audits
DOE Energy Savings Performance Contracting: The
Investment Grade Audit
Investor Confidence Project
(ICP)ICP website
ASHRAE ASHRAE website
PACENation Lender Support Update
Sonoma County PACE Replication Guidance Package for Local
Governments
National Association of
State Energy Offices Accelerating the Commercial PACE Market
Petros PACE Finance,
CleanFund, Greenworks
Lending, Twain Financial
Partners
Elements of a Well-Designed C-PACE Statute
and Program to Attract Private Capital and
Foster Greater Transaction Volumes
DOE, LBNL Commercial PACE: A Comparative Analysis
48
Table C-2: Selected program manuals and guides.
Texas PACE Authority PACE Program User Guide and Technical Standards Manual
Keeping PACE in Texas PACE in a Box
City of Milwaukee PACE Financing Program Manual
Clean Energy Solutions Statewide Commercial PACE Administrative Framework
Connecticut Green Bank C-PACE Program Guidelines
Colorado New Energy
Improvement District (NEID)C-PACE Program Guide
California First Program Handbook for Non-Residential Properties
Utah Governor's Office of
Energy Development C-PACE Program Guidelines
DOE/EE-1753 • February 2018
For more information, visit: energy.gov/eere