PACE in Mo. Ppt11

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  1. P A C E 2010 <ul><li>Property Assessed Clean Energy </li></ul><ul><li>In Missouri </li></ul><ul><li>James…
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  • 1. P A C E 2010 <ul><li>Property Assessed Clean Energy </li></ul><ul><li>In Missouri </li></ul><ul><li>James Trout </li></ul><ul><li>WELCOME </li></ul><ul><li>v11 </li></ul>
  • 2. PACE = P roperty A ssessed C lean E nergy <ul><li>Is a mechanism for municipalities to offer an arms length financing program for commercial, industrial, and residential property owners to implement energy efficiency and renewable energy improvements that pay for themselves. Local government can establish PACE boards to qualify and administrate. </li></ul><ul><li>Funds are provided from the sale of bonds, which are secured by voluntary property tax assessment contracts with participating property owners, and an associated tax lien on their property to repay it over the life of the improvements, up to 20 years. Assessment runs with the land. </li></ul>
  • 3. Process <ul><li>Municipality enables PACE through an ordinance and establishes a PACE Board to oversee projects and consultants. </li></ul><ul><li>Property Owners sign-up and can make a wide-range of energy improvements. </li></ul><ul><li>Loans are underwritten through a municipal bonds and paid back through special voluntary tax assessments. </li></ul>
  • 4. Introduction <ul><li>When the General Assembly passed House Bill 1692 during its 2010 legislative session, Missouri joined a growing number of states that have enabled property assessment clean energy (PACE) projects. Because the special assessments have a “senior tax lien” status (i.e., in the event of foreclosure, the special assessments along with property taxes get paid before a mortgage holder), bonds secured by the special assessments may be able to attract favorable interest rates. Originally a residential improvement finance too, PACE is being implemented commercially due to market demand. </li></ul>
  • 5. Benefits to PACE <ul><li>There are several benefits to this financing structure. Property owners who wish to participate do not need to pay cash or provide other upfront funding. By accessing capital through the issuance of bonds, PACE programs should be able to generate favorable net borrowing costs for participating property owners. Because the special assessments necessary to pay the cost of the energy efficiency or renewable energy improvements can be spread out over up to twenty years, it is possible for a property owner to realize immediate positive cashflow so long as the annual energy cost savings resulting from improvements exceeds the annual special assessment. </li></ul>
  • 6. Missouri <ul><li>A number of energy efficiency experts in Missouri looked at practical barriers to PACE implementation around the country, and decided to develop a model here that would work well from day one, chiefly on commercial. </li></ul><ul><li>This stakeholder group is crafting a best practices “playbook” for boards, driven by an energy audit, standardized M&V, and project qualifications. </li></ul><ul><li>This model should remove barriers, be scalable, stimulate our economy and create jobs, leverage the private sector to act, assure quality and build confidence, reduce risk to cities, lenders, and consumers, and provide maximum, sustainable benefits. </li></ul>
  • 7. Additional benefits <ul><li>- Missouri imports 90% of its energy, and exports those energy dollars. </li></ul><ul><li>Green jobs can’t be exported; green savings get spent locally. </li></ul><ul><li>Creates a public benefit, jobs, local commerce, and reduces energy consumption, pollution and property expenses </li></ul><ul><li>Revenue Neutral </li></ul><ul><li>Contributes to greater building comfort, health, affordability, and value </li></ul>
  • 8. Advantages <ul><li>Allows for secure financing of comprehensive projects over a longer term that enhances payback </li></ul><ul><li>Repayment obligation passes with ownership, overcoming hesitancy to invest in longer payback measures </li></ul><ul><li>Taps into private capital, such as the municipal bond market vs business loan </li></ul><ul><li>Allows governments to encourage energy efficiency and renewable energy without putting their general funds at risk </li></ul>
  • 9. . Mo. ranks 41st in Energy Efficiency http://aceee.org/pubs/e097.htm
  • 10. Energy use issue addressed <ul><li>America’s Building Stock </li></ul><ul><ul><li>Nearly 40% of our nation’s energy usage and greenhouse gas emissions (GHG) are from buildings and homes </li></ul></ul><ul><ul><ul><ul><ul><li>Commercial Homes </li></ul></ul></ul></ul></ul><ul><ul><li>Number of Units: 5 million 100 million </li></ul></ul><ul><ul><li>Approximate % of US </li></ul></ul><ul><ul><li>Energy Consumption: 20% 20% </li></ul></ul><ul><li>Number of Units Per </li></ul><ul><li>1% of Nation’s Energy Usage: 250,000 5 million </li></ul>
  • 11. > Office Electric Consumption
  • 12. . Manufacturing Electric Consumption
  • 13. Cost effective energy improvements identified by an audit <ul><li>Energy Efficiency </li></ul><ul><li>• Energy management systems </li></ul><ul><li>• Insulation & air sealing </li></ul><ul><li>• HVAC systems </li></ul><ul><li>• Boilers & furnaces </li></ul><ul><li>Equipment, processes </li></ul><ul><li>• Lighting </li></ul><ul><li>• Energy recovery & redistribution systems </li></ul><ul><li>• Motors & drives </li></ul><ul><li>Water Efficiency </li></ul><ul><li>• Greywater systems, High efficiency toilets, Waterless urinals </li></ul><ul><ul><li>Renewable Energy </li></ul></ul><ul><li>• Geothermal, Bio-gas, Solar hot water and Solar photo-voltaics </li></ul>
  • 14. Commercial Property Types <ul><li>Multi-family (greater than 4 units) </li></ul><ul><li>• Condominiums </li></ul><ul><li>• Apartment complexes </li></ul><ul><li>Commercial </li></ul><ul><li>• Office buildings </li></ul><ul><li>• Malls, retail </li></ul><ul><li>• Gas stations </li></ul><ul><li>• Restaurants </li></ul><ul><li>Industrial </li></ul><ul><li>• Factories </li></ul><ul><li>• Warehouses </li></ul><ul><li>• server farms </li></ul><ul><li>Agricultural </li></ul><ul><li>Poultry farms and feedlots </li></ul>
  • 15. Financing <ul><li>Pathways </li></ul><ul><li>Pooled Bond PACE applications are aggregated, and a revenue bond is issued to fund projects </li></ul><ul><li>Stand-Alone Bond For sufficiently large projects, a revenue bond is issued to fund an individual or small number of associated projects </li></ul><ul><li>Owner-Arranged Bond An owner arranges project financing with a private lender and the lender accepts PACE securitization and payback framework until aggregation drives bond activity </li></ul>
  • 16. Advantages to Property Owners <ul><li>INCENTIVE - Provides an alternative to loans, and an incentive to undertake EE/RE improvements, improve comfort, value, & savings </li></ul><ul><li>CREDIT - Does not affect credit, secured by assessment contract, lien runs with the land </li></ul><ul><li>SAVES MONEY - Required to be cash-flow positive, so improved finances. Savings increase over time. </li></ul><ul><li>INVESTMENT - Improves property value – voluntary program </li></ul><ul><li>REDUCED RISK – less concern with recouping costs on resale, since assessment contract stays with the property; benefits stay too. </li></ul><ul><li>NO UPFRONT COST – no down payment required typically </li></ul>
  • 17. Advantages for Municipalities <ul><li>NO NET COST – Bond issue can include funds for program admin, legal, marketing, reserve fund. A budget-neutral incentive </li></ul><ul><li>JOBS - real, permanent, green jobs, such as: energy auditors, design, insulators, HVAC, solar installers, windows installers, etc. unlikely to be off-shored. </li></ul><ul><li>LIMITED LIABILITY – Liability lies with separate board set up to administer the program. Property liens take first position. </li></ul><ul><li>MEET CLIMATE GOALS – move quickly to reduce energy use </li></ul>
  • 18. Advantages to Lenders <ul><li>Existing Mortgage Lenders: </li></ul><ul><li>Borrowers cash flow/credit profile improves (energy savings > annual tax cost) </li></ul><ul><li>Property/collateral value increases </li></ul><ul><li>Lender: </li></ul><ul><li>Virtually no risk of loss as property tax liens are senior to mortgage debt </li></ul><ul><li>97% of property taxes are current & losses are less than 1% </li></ul>
  • 19. Sample project <ul><li>$12,000 project </li></ul><ul><li>The total project cost is $13,200 (including audit, financing and administration costs) </li></ul><ul><li>Yearly tax assessment = $660 </li></ul><ul><li>Resulting yearly energy savings = $1,000 </li></ul><ul><li>Net result = ($1000-660=$340+) </li></ul><ul><li>Typical commercial = x 100 </li></ul>
  • 20. Recommended Anti-fraud <ul><li>PACE has many ways to prevent fraud and ensure accountability: </li></ul><ul><ul><li>Annual reports to boards and then state </li></ul></ul><ul><ul><li>Require use of certified contractors/energy auditors, permits, standardized metrics </li></ul></ul><ul><ul><li>Verification of project metrics at completion </li></ul></ul><ul><ul><li>Direct pay of contractors </li></ul></ul><ul><ul><li>White House and Missouri “Best Practices” </li></ul></ul>
  • 21. <ul><li>Combine Audits & Energy savings for a range of EE measures: </li></ul><ul><ul><li>Other Rebates, incentives, Tools </li></ul></ul><ul><ul><li>Access to financing </li></ul></ul><ul><ul><li>ID Qualified contractors </li></ul></ul><ul><ul><li>Performance measurement & evaluation </li></ul></ul><ul><ul><li>Consumer education & marketing </li></ul></ul><ul><ul><li>Partnering with community institutions </li></ul></ul>A potential “one-stop-shop” for energy improvements:
  • 22. Recommended Commercial Audit Qualifications: <ul><li>Commercial Auditor Standards </li></ul><ul><li>Auditors conduct ASHRAE energy audits at commercial project sites, IAC protocols for Industrial sites. </li></ul><ul><li>Qualified energy auditors may possess one of the following credentials: </li></ul><ul><li>1) A four-year technical degree from an accredited university or college and relevant experience in commercial and industrial auditing </li></ul><ul><li>2) A two-year technical degree with at least five years experience in commercial and industrial auditing. </li></ul><ul><li>3) A Professional Engineers (PE) or a Certified Energy Managers (CEM) license with experience in commercial and industrial auditing. </li></ul>
  • 23. Recommended Residential Audit Standards <ul><li>Mo. DNR accredited BPI, RESNET, or similar training protocol as approved by Mo. DNR, </li></ul><ul><li>using REMdesign reporting software model, or any DoE “Best Test” system. </li></ul><ul><li>Positive cash flow </li></ul><ul><li>Re-testing after substantial envelope improvements. </li></ul><ul><li>3rd party verification recommended in minimum of 1-5% of audits. </li></ul>
  • 24. Recommended “BEST PRACTICES ” <ul><li>Savings-to-Investment Ratio (SIR) Greater Than One </li></ul><ul><li>The Term Should Not Exceed the Life of the Improvement </li></ul><ul><li>PACE Lien Non-Acceleration Upon Owner Default </li></ul><ul><li>Employ Quality Assurance and Anti-Fraud Measures </li></ul><ul><li>Compound PACE benefit with Rebates and Tax Credits </li></ul><ul><li>Promote Consumer and government Education </li></ul><ul><li>Provide for data collection, standardized metrics, M&V </li></ul><ul><li>Promote Assessment Underwriting Best Practices Guidelines </li></ul><ul><li>Include Debt/Property Valuation, Owner’s Ability to Pay </li></ul>
  • 25. Potential property disqualifications <ul><ul><li>Delinquent status of taxes or any mortgages on property </li></ul></ul><ul><ul><li>Existence of involuntary liens on property </li></ul></ul><ul><ul><li>Recent default or foreclosure history </li></ul></ul><ul><ul><li>Recent bankruptcy history </li></ul></ul><ul><ul><li>Property is “underwater” </li></ul></ul><ul><ul><li>Unacceptable projects or contractors </li></ul></ul><ul><ul><li>Unqualified Owner </li></ul></ul>
  • 26. Assessment Board Startup <ul><li>Separately formed “political subdivision” board from the sponsoring municipality </li></ul><ul><li>CEDB Created by ordinance </li></ul><ul><li>Appointed Board members </li></ul><ul><li>Powers include, but are not limited to: </li></ul><ul><ul><li>Issuing bonds or otherwise borrowing money to finance PACE programs </li></ul></ul><ul><ul><li>Entering into Assessment Contracts with Property Owners </li></ul></ul><ul><ul><li>Recording liens for assessments due under Assessment Contracts </li></ul></ul>
  • 27. Clean Energy Development Boards <ul><ul><li>Created by one or more municipalities </li></ul></ul><ul><ul><li>Administers the PACE program </li></ul></ul><ul><li>Energy Efficiency Improvement </li></ul><ul><li>Renewable Energy Improvement </li></ul><ul><li>via Assessment Contract </li></ul><ul><ul><li>Between Board and Property Owner (and/or lender, manager) </li></ul></ul><ul><ul><li>Property Owner agrees to annual assessment in exchange for financing of Energy Efficient or Renewable Energy Improvement </li></ul></ul>
  • 28. Ordinance or order adopted by municipality <ul><ul><li>Should address both residential and commercial/industrial properties </li></ul></ul><ul><ul><li>Should work in concert with the municipality’s current zoning and land use requirements </li></ul></ul><ul><ul><li>May establish program guidelines, application requirements and financing criteria (e.g. the protections identified as “best practices”) </li></ul></ul>
  • 29. Jurisdictional cooperation, aggregation <ul><li>Municipalities may cooperate to form a regional boards and may cooperate to aggregate special assessment revenues into a larger bond financing. Such cooperation may allow projects to be financed on a tax-exempt basis even without an allocation of QECBs - </li></ul><ul><ul><li>Chapter 353 real property tax abatement </li></ul></ul><ul><ul><li>Chapter 100 industrial revenue bonds </li></ul></ul><ul><ul><li>Other dev. lease/purchase structures </li></ul></ul>
  • 30. the Board Contract <ul><li>Description of the Project, including estimated energy cost savings </li></ul><ul><li>Verification and accountability measures </li></ul><ul><ul><li>Amount financed cannot exceed final project costs </li></ul></ul><ul><li>Acknowledgment by Property Owner of special benefit received and agreement to pay annual assessments for up to 20 years </li></ul><ul><li>Records binding future owners of property </li></ul><ul><li>Special requirements if property is subdivided in the future </li></ul>
  • 31. Assessment security <ul><li>Annual assessments due under Assessment Contracts are paid and collected in the same manner as property taxes </li></ul><ul><li>Senior tax lien status; no acceleration </li></ul><ul><ul><li>In case of foreclosure, outstanding PACE assessments (and other property taxes and assessments) will be paid prior to mortgage. </li></ul></ul><ul><ul><li>i.e.: If property owner uses PACE to finance a $20,000 project through 20 years of annual assessments, but defaults in Year 2, only the Year 2 assessment is outstanding. </li></ul></ul>
  • 32. Recording and reporting <ul><li>The municipality will record an </li></ul><ul><li>assessment. </li></ul><ul><li>Auditors report metrics to boards </li></ul><ul><li>The current property owner and any future owner will make payments inside their regular property tax bills. </li></ul><ul><li>The payments over the life of
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