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.
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.