Environmental awareness and investment
Yesterday we had the opportunity to hear first-hand about Property Assessed Clean Energy (PACE) from Jane Elias, the Director of the Sonoma County Energy Independence Program. PACE is an innovative and alternative form of financing for energy upgrades that have a positive impact on the environment. The improvements are affixed to property and they can cover energy efficiency measures, installation of distributed generation from renewable sources, window insulation, water conservation or other retrofitting measures. PACE can be used in all sectors, from commercial to residential and agricultural, providing increased comfort and efficiency as well as reducing utility bills.
The way the system works is through the issuing of a municipal bond, which is then paid back through property tax. A 7% interest rate is set on property tax, 3% is for the treasury and the remaining 4% is for the maintenance of the program. PACE can cover an investment of up to 10% of the property value at the moment of application and only requires an upfront cost of approximately 200 dollars for the applicant to obtain the necessary paperwork, meaning it is a financial tool which is readily available to all.
Because the improvement is affixed to property, it will be passed on to the next owner and in this way, it is an investment which increases the property value. Furthermore, in the case of default on the mortgage payments which leads to a sale of the property, PACE will not be affected as it is linked to the property, meaning that due payments will be covered by the sale price and the improvements will be transferred to the next owner.
PACE was born four years ago in the county of Sonoma in the United States where, because of the recession, there was a strong need to create jobs and banks were unwilling to provide easy financing. Sonoma wanted to tackle climate change by reducing greenhouse gas emissions, and accordingly, PACE was developed, rapidly flourishing and achieving its goals, becoming the 4 billion dollar industry it is today. Currently PACE programs have been implemented in over 30 states in the US, with the development of the necessary enabling legislation.
It is true that there are some differences between the situation in the US relative to Spain, where multifamily buildings are predominant versus single family homes. Keep in mind also that the success of the PACE model depends on the speediness of the process (where an applicant can be approved in between 1 day to 1 week), making PACE very attractive. It is questionable whether these time periods are feasible in Spain. All of this tells us that if we want to implement similar mechanisms in Spain, we will require strong collaboration from the administration at all levels, and of course, a clear message that climate change must be addressed not only at a macro level, but also by taking a bottom up approach.
The predominant system used by the public administration for financing energy conservation measures in Spain so far has been largely based on offering aid schemes. On the other hand, the private sector has offered Energy Performance Contracts, by which installed energy efficiency measures are paid for by reference to the financial saving generated. Thus, PACE allows to utilise the best of both worlds in a joint effort to promote and lead the fight against climate change.