Keeping PACE with energy efficient loans

PACE Wisconsin is a financing program for businesses looking to make energy-efficient facility upgrades that provide low-cost, upfront financing covering up to 100% of project costs.

The average commercial building wastes 30% of the energy it consumes. With energy costs on the rise — and an increasing focus on sustainability — conserving energy and reducing operating expenses remain a priority for Dane County building owners.

However, longstanding barriers tend to impede investment in energy conservation building improvements, most notably the upfront price tag. Even if the long-term cost savings will be great, it can be hard for a business or property owner to open their wallets to make the necessary building modifications.

PACE Wisconsin formed in December 2016 to change that. PACE (Property Assessed Clean Energy) financing is currently available in 38 states, and more state programs are coming online. The idea for PACE sprang forth from the Wisconsin Energy Conservation Corp. (WECC), a Madison-based company specializing in the design and implementation of innovative energy efficiency and renewable energy programs.

“WECC partners with utilities, state and local governments, regulatory agencies, and other organizations to provide cost-effective solutions that help both consumers and businesses save energy and money,” explains Kimberly Johnston, marketing manager for PACE Wisconsin. “Though our foundation was built as a small grassroots organization focused on weatherizing homes of income-qualified residents, WECC has evolved to specialize in a wide range of energy products and services.”

Now, PACE Wisconsin serves as a single point of access for property owners, member communities, contractors, and lenders to qualify projects for PACE financing.

“Commercial Property Assessed Clean Energy (C-PACE) programs exist in several states, regions, and local governments,” notes Johnston. “Voluntary assessments for repaying municipal bonds have been attached to property taxes since the early 1800s to fund projects for public good. PACE uses the same concept, but for projects that benefit the private sector, or individual building owners, enabling them to obtain low-cost, long-term financing for energy efficiency, renewable energy, and water conservation improvements.”

According to Johnston, PACE financing is used to drive economic development by authorizing municipalities and counties to work with private sector lenders to provide upfront financing — usually for 100% percent of the cost of energy-saving improvements — to property owners for qualified projects. Among other things, PACE helps communities:

  • Stimulate job creation and investment in goods and services;
  • Lower the cost of doing business by reducing the cost of capital to fund improvements, which in turn saves building owners money on operating expenses;
  • Revitalize aging buildings, thereby improving the local building stock and raising the value of property and the potential tax base; and
  • Achieve sustainability goals by fostering the completion of energy and water conservation projects.

One local company that took advantage of PACE financing was H&H Group Holdings for upgrades to its H&H Energy Services building at 818 Post Road in Madison.

H&H plans to offset the majority of its electrical use at their building by installing a 57-kilowatt solar photovoltaic (PV) system, new roof, and new rooftop heating and cooling units to the one-story, 25,200-square-foot building.

“We purchased the facility in June 2017,” notes Paul Perkins, director of business development for H&H. “Given the fact the fact that the facility was over 20 years old, we knew there would be some facility upgrades needed in the near future. Two known issues were the roof and rooftop units. By adding a solar array to the project, we were able to utilize PACE financing.”

The 57 kW solar PV array will generate enough power to offset 100% of the annual electrical usage of the facility, says Perkins. In addition, the rooftop units were nearing the end of their useful life and maintenance costs and efficiency were becoming a concern. “The existing standing seam roof is structurally sound, but we will be upgrading it by installing insulation and a rubber membrane over the existing roof. Additionally, we’ll be adding new flashing and commercial gutters for additional operations and maintenance savings.”

According to Perkins, there were two main factors that stood out to H&H about PACE financing: they could lock in an interest rate for 20 years and the financing was nonrecourse. H&H ultimately secured a PACE loan totaling $203,875 with a 6.25% interest rate and a 20-year term.

Annual energy cost savings for H&H are projected at $9,910, according to Johnston, and the lifetime savings from the upgrades will be about $208,110.

To date, six PACE loans have been closed, with the total project costs funded currently standing at $4,915,382 and the total projected lifetime savings of $10,356,605 from the energy improvements. Johnston notes three of those loans were for Dane County-based projects, including H&H, and more local projects should close on funding imminently.

The other Dane County projects that have utilized PACE funding are:

Hotel Indigo

PACE financing:  $1,500,000
Annual savings: $89,832
Lifetime savings:  $1.9 million
Improvements: HVAC, windows, building shell, lighting

 

 

Velocity

​PACE financing: $232,996
Annual savings: $5,206
Lifetime savings: $104,123
Improvements: HVAC system, windows, lighting

 

 

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Eligible projects

Thirty counties, including Dane County and neighboring Sauk, Iowa, and Jefferson counties, now participate in PACE Wisconsin. Additionally, 12 PACE lenders and two financing advisors are currently participating, and there are three Dane County lenders taking part, along with other regional and national lenders.

PACE Wisconsin is available to eligible commercial and industrial property owners in participating communities. The program supports the redevelopment of existing buildings, as well as new construction projects.

Some eligible improvements (projects) include:

  • Efficient lighting systems
  • Building envelope improvements
  • Efficient furnaces, boilers, and chillers
  • Heat pumps (air and ground source)
  • Pumps, motors, and variable speed drives
  • Automated HVAC controls
  • Building management systems
  • Fuel switching
  • Combustion and burner upgrades
  • Water conservation
  • Efficient hot water heating systems
  • Heat recovery and steam traps
  • Renewable energy systems

Eligible PACE projects:

  • Office, industrial, multifamily, and retail
  • Hospitality
  • Institutional and not-for-profit facilities
  • Agriculture
  • Manufacturing and industrial

Eligible properties need to be located in a participating PACE Wisconsin member county, and eligible projects do not include residential (1–4 units) or government-owned properties.

To take advantage of PACE financing, property owners must first develop qualifying energy and water conservation projects with the contractor(s) of their choice, says Johnston. Building owners then arrange PACE financing with a qualified PACE lender and, if applicable, acquire mortgage lender consent. Next, the property owner applies to PACE Wisconsin to qualify their project for PACE financing according the program requirements. If the PACE project is approved, the PACE Commission, borrower, and PACE lender enter into a PACE financing agreement.

“We would certainly recommend property owners look into the program,” notes H&H’s Perkins. “Right now it seems to be a great way to finance solar arrays for property owners that may have capital constraints and can’t take advantage of tax credits, like nonprofit organizations. If building and site conditions allow for it, they can reduce their utility costs more than what it costs to service the debt on day one.

“If a property owner has the tax appetite for credits and depreciation, it only strengthens the case for PACE financing when their capital can be deployed elsewhere,” adds Perkins. “Another great thing about the program is that it can be used for financing new construction, provided other program requirements are met, and help improve an owner’s return on equity.”

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