C-PACE

Commercial Property Assessed Clean Energy (C-PACE) allows commercial property owners to receive 100% financing to pay for building efficiency improvements such as renewable energy systems, efficient lighting upgrades, building control systems and other energy conservation measures (ECMs).
Credit: Oregon DOT

Connecticut Commercial Property Assessed Clean Energy (C-PACE) financing is a voluntary alternative to a conventional commercial property capital improvement loan.

C-PACE was designed to not only encourage the installation of renewable-energy systems and improve building energy efficiency, but also to help commercial property owners overcome the barrier of high up-front energy equipment and installation costs.

While C-PACE financing does not reduce the total price tag of an Energy Conservation Measure (ECM), such as a new chiller, lighting upgrade or renewable energy system, the 100% financing combined with low cost, long-term financing helps make such measures affordable.

C-PACE financing effectively allows commercial real estate (CRE) owners to make investments in cash flowing improvements such as renewable-energy systems and/or energy-efficiency measures that are repaid over up to 20 years through a property tax assessment.

Connecticut property owners within a jurisdiction that has opted in to the C-PACE program may receive financing subject to the special assessment.

 

Free LEED Exam PreperationThe "Old" Way

Michael Fascitelli, former CEO of Vornado Realty Trust, was once quoted as saying: "Real estate eats cash for breakfast, lunch and dinner." Indeed, our building's mechanical systems break down, roofs deteriorate, elevators wear out, and lighting systems become outdated. All the while utilities steadily increase the cost of our energy, electricity and water.

Before C-PACE, the "old" way of making capital improvements to a property often required enduring negative cash flow. Building owners either committed to investing their own cash out of pocket, or took on incremental debt in the form of short term bank financing.

In either case, the return on investment (ROI) associated with the capital improvements was forecasted to occur well into the future, if ever.

Happiness is Positive Cash Flow

A fundamental prerequisite to any C-PACE project financing is that the ECMs must have a Savings to Investment Ratio (SIR) of >1. An SIR of greater than one means that the savings outweigh the cost of the conservation measures over their expected useful life (EUL).

With C-PACE, the "new" way is a scenario (often perceived by owners as "too good to be true") where the capital expenditures generate positive cash flow in year one.

Instead of coming out of pocket to fund necessary capital improvements to experience negative cash flow, owners see positive cash flow and no out of pocket costs.

C-PACE Positive Cash Flow Scenario

Summarizing C-PACE Benefits

In addition to reducing, or eliminating completely, the upfront costs of renewable energy and/or energy-efficiency improvements, C-PACE financing offers additional financial benefits for property owners including MACRS depreciation for renewable energy investments, the Business Energy Investment Tax Credit, off-balance sheet loan structure and non-recourse terms.

Because C-PACE financing is repaid through a special assessment on property taxes, the repayment obligation of the energy efficiency improvements runs with the property itself. Thus, if a commercial property owner participating in a C-PACE program sells the property within the repayment term of the lien, the special assessment legally transfers with the property.

The many benefits of PACE to CRE owners include:

  • 100% up front financing for energy efficiency improvements
  • Long term fixed rate financing (10, 15 or 20 years)
  • Positive cash flow for CRE owners
  • Business Energy Investment Tax Credit benefit
  • MACRS depreciation (for renewable energy investments)
  • Loans tied to the tax capacity of the property rather than to the owner’s credit standing
  • Off balance sheet financing
  • A repayment obligation that legally transfers with the sale of the property

Cities or counties may use their bonding authority to finance programs. C-PACE programs does not impact state budgets, local budgets or general funds; the administrative costs are typically covered by bond issuance and interest paid by property owners participating in the program. 

The following video, provided by PACENow.org, an advocate for property assessed clean energy, presents the benefits of PACE in 90 seconds:

 

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