Property Assessed Clean Energy (PACE) is an innovative mechanism for financing energy efficiency and water conservation improvements to existing structures on commercial, industrial, and multi-family residential property. PACE is a relatively new concept that has been adopted in 30 states. It is designed to overcome traditional barriers to efficiency improvements by providing low-cost, long-term, private-sector loans to property owners who elect to participate in the program. PACE loans usually cover the entire cost of the improvements and are secured by senior assessment liens that run with the title to the property. The loans are repaid by the owner as a voluntary assessment on its property tax bill. As a general rule, PACE loans are structured so that the annual savings achieved by the improvements will exceed the amount of the annual assessment payment.
Impetus for PACE Legislation
Texas enacted the Property Assessed Clean Energy Act during the 2013 legislative session. The Act is codified in Chapter 399 of the Local Government Code. Keeping PACE in Texas, a non-profit association formed by Thompson & Knight, led the effort to advocate for the legislation. The work of this association was instrumental in gaining support for PACE from a wide range of business interests, governmental organizations, and trade associations across the state.
How Will PACE Work in Texas?
The PACE statute authorizes municipalities and counties to create regions in which PACE financing will be available. Property owners within these regions may elect to use PACE programs to pay all costs and fees associated with the installation or modification of a “qualified project” (i.e., a project involving permanent improvements affixed to real property and intended to decrease water or energy consumption or demand). Before a PACE assessment can be imposed, written consent must be obtained from the holder of any mortgage lien on the property.
A PACE assessment will have the same priority and can be enforced in the same manner as a lien for ad valorem taxes. Because the lien will run with title to the land, each owner of the property will bear only the portion of the cost that accrues during its period of ownership. The term of a PACE loan may extend for the useful life of the qualified project.
Who Can Participate in PACE?
Any private owner of commercial or industrial real property or residential property with five or more dwellings, who meets the requirements of the PACE loan program adopted for the PACE region in which the property is located, and who has a project that qualifies for PACE financing may elect to participate in PACE.
What are the Benefits of PACE in Texas?
The benefits afforded by PACE include:
- 100% financing of all improvement costs and fees
- Low-cost, long-term financing (up to 20 years)
- Reduced operating costs (increased cash flow) realized through lower utility bills
- Reduced demand on the energy grid
- Enhanced property value
- Increased opportunities for private sector jobs
- New business opportunities for engineers, construction contractors and energy service companies
- Potential tax benefits for property owners
- New opportunities for commercial lenders and investors
- Intangible benefits, such as green credits