Property Assessed Clean Energy financing grows in California

Nearly 150 cities in California are joining the new wave of solar financing that requires no down payment from property owners.

A program that would let property owners in 14 California counties borrow money to install solar photovoltaic systems and repay the loans through property taxes is expected to receive $16.5 million in funding through the American Recovery and Reinvestment Act. 

The program, which will be called CaliforniaFIRST, could lead to loans worth far more than the initial grant funding and would be the latest iteration of a zero-down solar financing method that is rapidly gaining adherents across the country.

The city of SanFrancisco has approved the issuance of up to $150 million in bonding for a similar program.

Under the types of programs planned – commonly called Property Assessed Clean Energy, or PACE, residents can install solar PV systems or other energy-efficiency improvements on their properties and cover the entire cost by borrowing from a local or regional government loan fund.

Repayment is made through property-tax assessments over a period that typically ranges up to 20 years. The interest rates offered are intended to be less than those available through home-equity financing methods.

If a property is sold, the solar array and the additional property-tax bills generally remain with the property and become the responsibility of the new owner. 

Filings for federal stimulus money indicate that in the CaliforniaFIRST plan, 146 cities in 14 California counties are to be eligible for a share of $16,499,050 in federal funds.

The counties that would share in the federal seed money are Alameda, Fresno, Kern, Monterey, Sacramento, San Benito, San Diego, San Luis Obispo, San Mateo, Santa Clara, Santa Cruz, Solano, Ventura and Yolo. Los Angeles County also plans to establish a PACE program this year but is not part of this group.

The program’s sponsor is the California Statewide Communities Development Authority, an entity called a joint powers authority that allows cities and towns to band together to act as funding conduits. The idea behind such groups is that they are collectively able to achieve economies of scale.

The specific guidelines for the proposed program are not yet publicized on the web sites ofthe organizations involved, which in addition to the development authority include an Oakland company called Renewable Funding and a Santa Cruz group called Ecology Action.

Typically such programs have minimum and maximum loan amounts, and do not ordinarily require credit checks or property appraisals. A property owner is generally free to choose any qualified equipment installer, or to do a self-installation, with the governing agency retaining a right to review the costs before agreeing to a loan contract. Proof that the loan recipient holds title to the property is one standard requirement. Property taxes and mortgages must usually be current, and properties must be free of liens.

The government agency providing the loan usually places a lien that is senior to any other debt obligation on the property. 

Recent loan rates in California have been about 7 percent. The loan provider may charge a fee, sometimes imposed annually, and consumers should make sure they know whether the fee could rise, and by how much, over the loan period. Repayment periods are typically set at 10, 15 or 20 years, depending on the property owner’s preference in consultation with the loan provider.

To obtain money for establishing loan funds, governments can issue bonds or may obtain grants, as in the CaliforniaFIRST case. They also can allot money from their general funds or other budget sources, or engage private lenders. Governments in some cases may be able to cover their costs by charging interest rates that are h
igher than their cost of funds, but lower than private-market rates available to property owners. The programs do not affect taxes of other residents.

This type of loan program began in Berkeley and Palm Desert, Calif., in 2008 and has since spread to almost 20 states. The concept was first announced in Berkeley, and PalmDesert was the first jurisdiction to formally offer loans.

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