Due to the impact of COVID-19 many building owners are strapped for cash. Even though needed building upgrades may be long overdue, a business that has been idled for months may find it hard to come up with the cash needed to launch such projects. A unique funding option known as Property Assessed Clean Energy (PACE) makes this the perfect time to fund upgrade projects with an energy efficiency component. Compared to traditional funding options, PACE not only saves the property owner money but can provide new-found capital.
PACE finances 100% of the project costs while commercial bank loans typically require a down payment of 15-25%. PACE loans are also non-recourse-it is the property that secures the loan not the owner. PACE loans can be considered “off-balance-sheet” saving the owner’s borrowing capacity for other needs. And especially beneficial during these economic times, prior energy efficiency upgrades completed up to three years ago can be refinanced with a PACE loan at favorable terms. This provides the property owner with a new source of capital.
E3 Prime Environments has developed an informational tool for explaining how Property Assessed Clean Energy (PACE) funding works as well as the benefits to a building owner. In addition to providing an overview of PACE the document illustrates the cash flow benefits of a PACE-funded project. What follows is a summary of the resource or the complete document can be downloaded for free HERE.
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- The bar on the left represents total energy expenditures prior to undertaking energy efficiency upgrades.
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- The bar on the right represents the cost/savings profile following an energy efficiency upgrade funded with a PACE loan. It highlights the unique advantage of using energy savings to finance vital upgrade projects.
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- PACE loans are for extended terms-most often 15 to 25 years-at fixed interest rates. In this respect they function much like a mortgage. They are repaid with a special assessment on the owner’s property tax bill. Current PACE interest rates typically range from 5.5% to 6.5% and are influenced by the building’s value, the owner’s credit worthiness and their property equity.
- As indicated in the PACE overview, qualifying upgrades essentially include any improvement where the energy savings can be accurately measured. For most buildings, the major energy consumers are the HVAC (Heating, Ventilation and Air Conditioning) and lighting systems, frequently accounting for 60 to 70% of consumed energy.
- Depending on the age of the building and if there have been recent energy efficiency upgrades, these improvements often reduce energy costs by 40% to 50%. The post-upgrade energy expenditures are represented by the blue area.
- The orange area represents the total cost of the project including equipment, labor, material, audit, engineering, legal and financial-every cost associated with the energy efficiency improvements. The resultant savings are frequently greater than the entire cost which is represented by the green area. Many states require that the “savings to investment ratio” (SIR) be greater than one. That is, the project must be cash-flow positive.
To comply with building health requirements following the pandemic, many owners will need to upgrade equipment. If these upgrades have an energy-saving component, financing them with Property Assessed Clean Energy is the smart funding option. It not only maximizes cash flow, but may also result in a source of new-found capital. If you have any questions regarding PACE, please don’t hesitate to contact Info@e3pe.com.
“Funding is the number one obstacle to energy efficiency projects going forward. PACE very effectively removes this obstacle and is rapidly becoming the preferred funding choice as the demand for energy efficient properties grows.” Curt Monhart
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