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Municipal Energy Financing

a.k.a. Property Assessed Clean Energy (PACE)

John Farrell

Institute for Local Self-Reliance

Presentation to the Southwest Renewable Energy Conference (SWREC)

Santa Fe| September 14, 2010

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New Rules Project @ ILSR

Public Broadband

Local Banking

Independent Retail Community Energy

@ Inst. For Local Self-Reliance

Energy Self-Reliant Stateswww.muninetworks.org

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Municipal Energy Financing

Overview

Rationale

Potential Issues

Municipal Energy Financing: Lessons Learned

http://bit.ly/munienergyfinance

Municipal Energy Financing@ SWREC

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Overview

Installs energy

efficiency

improvements and on-

site renewable energy

In

stalls energy

efficiency

improvements and on-

site renewable energy

Sells bonds

Sells bonds

Pays for property

improvements

Pays for property

improvements

Pays with long-term

property tax

assessment

Pay

s with long-term

property tax

assessmentAssesses property for

cost plus interest

Assesses property for

cost plus interest


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Rationale: Financing Mismatch

Average time in one residence:

Finance terms:

10-15 years

5-6 years 5-6 years

5-6 years


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Solution: Property Tied Financing

Long-term financing stays with property

10-15 years

5-6 years 5-6 years


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Rationale: Information Disjointed

Utility

rebate

State

rebate

Federal tax

credit

Nonprofitenergy

guide

Utility

audit

Energy

Star rating


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Solution: One-stop Shop

Utility

PACE

program

PACE

program

Federal

Nonprofit

State


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PACE Process

PACE program advertisedInformation

sessionsSign-up

Energy

audits


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PACE Process

Retrofit

contract

Retrofit

completed,

City pays

Owner pays assessment,

enjoys energy savings


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PACE Status

22 states

4 established municipal programs

Almost $40 million spent 2,000 properties served

Legend

Recently enactedPACE laws

Pre-2009 statutes

supporting PACE


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PACE Status

$3,600

$40

$0 $1,000 $2,000 $3,000 $4,000

Utility Energy Efficiency Programs

PACE Programs

Millions

Spending in 2009


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PACE Potential

$3,600

$600

$300

$0 $1,000 $2,000 $3,000 $4,000

tility Energy Efficiency Progra s

PACE Progra s 2011

PACE Progra s 2010

Millions

Future Spending?


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Issue: Fannie Mae Objects

PACE loans generally have automatic first lien priorityover previously recorded mortgages. The terms of the

Fannie Mae/Freddie Mac Uniform Security Instruments

prohibit loans that have senior lien status to a mortgage.

As PACE programs progress through the experimental

phase and beyond, Fannie Mae will issue additional

guidance to lenders as may be needed from time to time.

Lender letter: http://tinyurl.com/3y2g4mw

Lender Letter LL-2010-06

May 5, 2010

TO: All Fannie Mae Single-Family Sellers and Servicers

Property Assessed Clean Energy Loans

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Issue: Fannie Mae Objects

1. We dont come second.2. This isnt a public good.

3. Were buried in a subprime mess. Nothing

new, please.

Lender Letter LL-2010-06

May 5, 2010

TO: All Fannie Mae Single-Family Sellers and Servicers

Property Assessed Clean Energy Loans


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Solution #1: Lawsuits

FHFA, Fannie, & Freddie sued by:

California Attorney General

Sierra Club Sonoma County, CA

Town of Babylon, NY


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Solution #2: Legislation

The PACE Assessment Protection Act of2010

Fannie Mae and Freddie Mac must revise their

lending standards to conform with Department of

Energy PACE Guidelines from May 2010.

FHFA, Fannie, and Freddie

may not discriminate

against any borrower in acommunity with a PACE

program.


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Solution #3: Alternatives

On-billfinancing

Utility finances improvements

Utility ties billing to the meter instead ofindividual

Pay As You Save (now defunct)

Drawbacks

Requires utility participation

Utility billing system may need upgrade


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Junior liens (e.g. Maine)

Does not come before mortgage in event of

default

Still tied to property tax bill

Drawbacks

No secondary market

Cant transfer between owners?


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Subsidized home retrofits

E.g. weatherization

Drawbacks Who pays for subsidy?


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Loan loss reserves

Can insulate lender

Drawbacks Who pays for reserve?

DOE webinar on Monday

http://tinyurl.com/37wt6o9


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Loan insurance

Insulates lenders

Low cost

Drawbacks

Offered to FHFA, but rejected

No private market right now


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Thank you!

John Farrell

www.newrules.org

[email protected]

http://twitter.com/johnffarrel

l

*New*

Community Solar Power:

Obstacles and OpportunitiesMunicipal Energy Financing: Lessons Learned

http://bit.ly/munienergyfinance

2010-0914 jff pace

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