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Center for Business and the Environment

What’s Unique about the Texas PACE-in-a-Box Toolkit

Texas faces an unusual scenario when it seeks to advance property-assessed clean energy (PACE). The state has a tradition of seeking private-sector solutions and streamlining government activities. This means PACE methods adopted in other states – such as Connecticut – would not work in Texas.

Also, Texas’s private sector is massive. The state’s businesses – and their environmental footprint – are growing rapidly. In a Nov. 18 webinar called “PACE in Texas 101,” Charlene Heydinger, executive director of Keeping PACE in Texas, said Texas uses 19 percent of the industrial energy consumed in the United States.

“Texas leads the nation in energy consumption, accounting for 12 percent of the nation’s energy use,” Heydinger said. “Water is even more of a challenge.”

“All of this is being exacerbated by tremendous growth in Texas,” Heydinger said. “More than 1,000 people move to Texas every day.”

“PACE can help,” Heydinger said.

PACE, as Texas defines it, includes loans for energy efficiency, renewable energy, distributed generation, and water conservation. It covers commercial, industrial and multifamily properties.

Loans for all of these projects are created via voluntary county or municipal property assessments. These loans are considered high-priority compared to other debts, are passed on to new property owners, and survive defaults and foreclosures.

These terms are very favorable for lenders, since they make repayment quite reliable.

As Texas faces water shortages and grid reliability issues, its need for both clean energy and water efficiency are growing rapidly. Heydinger presented a graph showing the large scope of the current drought. This drought impacts industrial enterprises and other businesses and affects many communities.

Expanding PACE

The convergence of all of these factors has created momentum in Texas’s private sector and government to develop PACE programs that cover both water and energy. More than 100 stakeholders have built a toolkit in a unique response to this challenge. It is aptly titled “PACE-in-a-Box.”

“What is really wonderful about PACE-in-a-Box is that it’s the first program in the United States that has been designed by the stakeholders who are going to use it,” Heydinger said. “We were highly motivated with several goals that reflect the Texas economy and Texas mindset.”

Many potential PACE projects have already been proposed in Austin, Amarillo, and other cities – even though the programs do not exist yet.

When Gov. Rick Perry signed PACE legislation in 2013, the proposal was relatively flexible. It left a great deal of room for local municipalities and counties to interpret how to implement PACE.

But stakeholders recognized that such a high degree of flexibility would doom PACE to failure in smaller and more rural communities. While larger cities such as Austin and Houston might have the resources to customize PACE, smaller communities do not.

The toolkit specifies that small communities can partner with one another regionally to work together to implement PACE. This may result in clusters of communities creating PACE programs collaboratively.

Building a Standardized Solution

Keeping PACE in Texas partnered with a large network of groups to develop a simplified, standardized solution that communities and regions throughout the state can use.

PACE-in-a-Box contains standard documents for all of the major transactions involved in local PACE programs – from public hearings to lender negotiations.

According to Rachel Stone, Policy Coordinator at South-central Partnership for Energy Efficiency as a Resource (SPEER), PACE-in-a-Box provides many resources for program developers. These include model contracts for providers and lenders, open market financing instructions, a model lender notice, a technical manual for ensuring the viability of energy improvements, a model application, and a series of tests of financial ability.

“We’ve tried to do as much as we can to make this easy for local governments to use,” Heydinger said.

PACE-in-a-Box encourages property owners to select their own contractors, lenders, and equipment manufacturers.

Stone said she believes this market demand will stimulate economic growth. “PACE helps in places where the economy has been depressed and people want to make capital improvements.”

The toolkit encourages third-party financing of loans, but municipal bond financing is also an option.

Loans may be serviced by the local PACE program itself, via a county tax assessor or collector, by the lenders, or by third-party servicers.

Stone said PACE-in-a-Box recommends a savings-to-investment ratio of greater than one for each project. It also recommends total investment of less than 20 percent of each property’s assessed value.

“We are only doing deals that make sense in the business community,” Heydinger said.

This article was originally published by Clean Energy Finance Forum, a news website sponsored by Yale University. To subscribe to our newsletter, please visit our website.

01/06/2015 0 comment

Renewable Energy

Designing Climate Finance for the Developing World

written by Kat Friedrich

Scaling up investment in developing nations to reduce the hardships of climate change poses many challenges. The Organisation for Economic Co-Operation and Development, an international forum for improving social and economic policies, produced a report exploring this urgent situation in May. The report is titled “Scaling up and Replicating Effective Climate Finance Interventions.”

Kat Friedrich, editor of Clean Energy Finance Forum, interviewed Takayoshi Kato, the first author of the report, via email in August. The conversation explored the structural obstacles that make it difficult to expand climate finance in the developing world. It also highlighted strategies for sharing best practices, building self-sustaining programs, and developing adaptable solutions.

CEFF: The research paper says private climate finance can be mobilized by scaling up and replicating small-scale interventions. What are some of the advantages of starting at the local level rather than starting at a higher level?

Kato: One advantage of starting at the local level can be that a local-level intervention can more likely benefit from the knowledge and experience of local stakeholders and financiers as well as interpersonal networks in the area, which in turn could lead to timely and smooth implementation of the intervention.

Also, there are lots of small-scale actions that are economically efficient or have many co-benefits (for example, residential energy efficiency, agriculture, etc.), so this is an opportunity that needs to be tapped.

But you should also note that our paper and some previous studies have found that we should go for programmatic approaches, rather than project approaches, to better align individual climate initiatives with national developing goals in developing countries.

CEFF: What are some of the types of financial instruments that can be effective in helping climate finance interventions expand in developing nations?

Kato: There is no one-size-fits-all financial instrument to help climate finance interventions expand in developing nations.

The instruments or tools which are best suited to specific climate activities vary among different countries, technologies and project types.

For instance, grants can be particularly useful for building capacity and mobilizing financial support for countries with limited institutional capacities or resources.

Concessional loans could improve risk-return profiles of projects with greater risks such as large upfront investment requirements. Other instruments and tools (such as green bonds and equity provision) are better suited for generating interest from the private sector in more financially mature markets.

Importantly, some cases show that projects and programs tend to be more successful if they involve multiple financial instruments (and also multiple actors and policy interventions).

CEFF: What are some enabling environments and supportive institutional structures that facilitate the growth of climate finance interventions?

Kato: We need a variety of actions to enhance enabling environments and institutional capacities in developing countries to better access, manage and use the finance.

We need to work together among different levels of governments, private-sector organizations, and civil society to improve and sequence various policy frameworks such as stable policy goals, regulatory and policy instruments, and monitoring and evaluation frameworks. We also need to align these elements with countries’ national development goals.

It would also be useful to have a feedback loop process to revisit and update policy goals and policy instruments from time to time.

CEFF: What are some of the policy obstacles that can make it difficult for climate finance interventions to expand in developing nations?

Kato: In fact, there are barriers for finance in general such as the need for a stable regulatory environment, the relative maturity of local financial markets, the rule of law in the nation, and limited currency risks.

And on top of that, there are further climate-specific risks. Climate finance interventions could be expanded more in developing countries if they have stable and coherent policies for pricing carbon (and rationalizing subsidies for fossil fuels), develop local financial markets and investment policies to level the playing field for greener investments, and improve accountability.

International cooperation for building such “readiness” is also essential.

CEFF: The report mentions the importance of sharing best practices and performance data across programs. Is this an area in which international collaboration is possible? If so, how might that work?

Kato: It is an encouraging sign that there are a number of forums where negotiators, practitioners and academics can exchange their experiences and views.

Possible international collaboration on sharing best practices could build on such environments. Under the Convention, for example, there are the Forums of the Standing Committee on Finance, the Technical Expert Meetings, and the Durban Forum on capacity building.

There are also many initiatives outside the Convention, such as the Climate Investment Fund partnership forums. Indeed, information provision and sharing is an explicit part of some international climate finance programs, such as the Global Environment Facility and the Climate Investment Funds.

Also, a measuring, reporting and verification system could be enhanced in the post-2020 period so that it could provide decision makers with a wider range of information on effectiveness of the climate finance interventions. Such information would need to be shared internationally.

CEFF: How can organizations determine when climate finance interventions have become self-sustaining?

Kato: It really depends on the types of finance interventions and criteria that those organizations have for determining self-sustainability.

In the simplest sense, self-sustainability might mean the profit level that can cover capital, operational and financial costs.

Also, developing sufficient capacity and accumulating knowledge are essential parts to make interventions self-sustaining once the international financiers or consultants who set them up have gone away.

But many adaptation projects do not have revenue streams, at least in the short term. Even so, some adaptation projects could be self-sustaining, since a government keeps providing funding for those projects as this is recognized as the role of the government in providing public goods.

This article was originally published by Clean Energy Finance Forum, a news website sponsored by Yale University. To subscribe to our newsletter, please fill out our contact form.

10/15/2014 1 comment