PACE FALLS BUT NEW ENERGY & EFFICIENCY GO ON

PACE Setback: Alternate Strategies Could Save U.S. Investment in Residential Clean-Energy and Efficiency Programs
Andrew Berg, September 16, 2010 (Clean Edge)

"The Federal Housing Administration (FHA) recently derailed one of the most popular and important tools for financing energy efficiency and clean-energy job creation. The tool, called Property Assessed Clean Energy (PACE), had attracted interest from communities across the country and millions of dollars in federal funding. Now, PACE programs for residential homes are all on hold, or canceled…

"The FHA, however, had legitimate reasons for stopping PACE, as PACE would have created tax liens on private property senior to the existing mortgage instruments that it insures…increasing the perceived risk...for the primary mortgage holder. The benefit of PACE is the proposition of a repayment mechanism for clean-energy financing focused on…the entire underlying real-estate asset…But the mortgage industry’s current problems highlight the limitations of this strategy."

It's going to take creative thinking to replace it. (click to enlarge)

"…Millions of mortgage loans are currently held in securities that have questionable asset/collateral value…Roughly one quarter of American mortgages are underwater…PACE financing instruments could have inadvertently marginalized and deteriorated the collateral value available to mortgage holders on existing loans. This unintended consequence of PACE financing has some real and perceived negative consequences for a fragile mortgage industry…In this context, it’s no surprise the FHA decided to step in.

"…[I]t’s critically important that we recognize the tremendous support and enthusiasm for clean-energy financing PACE recently created…Thankfully, other strategies are ready to pick up what PACE has started and deliver on the promise of financing clean-energy improvements…[Because of] the ability to predict cash flows for clean-energy loans by monitoring and verifying the energy savings/performance of buildings that undergo energy-efficiency upgrades…private capital can finance these improvements with support from public funding….[T]he investment potential for energy efficiency in the United States [is estimated] at $520 billion with returns of $1.2 trillion over the next 10 years. Private capital will chase this enormous market, and build an entire industry of clean-energy jobs in the process…"

In the long run, it could be one of the worst losses of the economic downturn. (click to enlarge)

"The U.S. Department of Energy recently awarded $450 million to 25 different cities and states…The “BetterBuildings” awards lay out a goal of leveraging private capital by ratios of at least 5:1. If successful, that will translate into approximately $2.75 Billion in energy-efficiency work over the next three years…[and] this is still only half of one percent of the $520 Billion investment potential…

"Another alternative to PACE is to work with utilities…As the nation’s primary energy providers, utilities have an important role to play in attracting this investment…[U]tilities can offer investors and lenders a reliable repayment mechanism with low historic default rates…[T]he simple service of on-bill repayment may offer even more support for energy investment in the long run…By directly engaging utility companies and financial institutions…energy-efficiency programs across the country can still spark the growth in clean-energy investment that PACE had promised…PACE was one innovation. On-bill repayment is another. These tools only scratch the surface of our creative potential…"