PACE Clean Energy Financing Gets New Lease on Life in California

Although the long-term fate of Property Assessed Clean Energy (PACE) financing is far from certain, a recent California court victory may help revive the popular model.

On August 9, a federal district court judge in California ruled the Federal Housing Finance Agency (FHFA) violated federal law when it abruptly decided not to underwrite mortgages on homes that used PACE loans without a public comment period.

That public comment period is open until September 13. FHFA’s final decision will now be subject to much more scrutiny. 

PACE, authorized in 27 states through legislation, makes it much easier for property owners to finance energy efficiency and renewable energy projects in homes and businesses without prohibitive upfront costs. 

Property owners can take out a loan to cover these energy upgrades, usually funded by government bonds, and repay it over 20 years by paying a bit more on their property taxes.

The PACE structure allows the high initial cost to be spread out to match the energy payback period, so the annual energy cost savings exceed the tax assessments.

In July 2010, FHFA issued a position statement calling the loans risky and inadvisable, which all but killed PACE programs. The issue for the federal government was that PACE loans might be paid back before banks or Fannie Mae or Freddie Mac if a property went into foreclosure.

"With this decision, the FHFA PACE policy is officially toast until the agency can develop a final rule pending the outcome of an ongoing rulemaking process," writes the Legal Planet blog.

"To be sure, this decision does not clear up the long-term uncertainty around PACE, but it limits the FHFA’s ability to issue a sweeping policy undercutting the program. The question now is whether FHFA appeals the decision and whether a higher court needs to resolve the split with contrary PACE decisions by New York courts on the issue of standing. Ultimately, local governments may be hesitant to restart their PACE programs until these questions are answered, and they’ve already missed a crucial window to use now-spent stimulus funds to launch them," writes Legal Planet.

A 2011 survey showed strong interest in PACE programs.

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Comments on “PACE Clean Energy Financing Gets New Lease on Life in California”

  1. Alan R Giddens

    Pace program is very important to the future of residential solar. The program is much more cost effective than leasing & better return for the owner

    Reply

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