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Bill Would Channel Private Funds for Clean-Energy Building Programs

Building owners could finance energy-saving projects and repay long-term loans through municipal property tax assessments

energy efficiency

Advocates for a clean-energy financing program on Friday renewed their call for state lawmakers to pass a bill, S-1510, that would let New Jersey municipalities obtain private funds for energy-conservation or clean-energy retrofit programs on behalf of the owners of commercial or residential buildings.

New Jersey PACE, an acronym standing for Property Assessed Clean Energy, is designed to encourage building owners and managers to save energy and reduce carbon emissions, while increasing real-estate values and improving buildings’ resilience to extreme storms like Hurricane Sandy.

A capacity audience of some 270 builders, bankers, real estate professionals, energy contractors, and politicians gathered at Princeton University to hear details of the plan. Its goal is to facilitate the flow of private capital to building owners who want to make improvements like installing solar panels or new heating systems but can’t raise the money or don’t want to wait for years to recoup high upfront costs.

Under the plan, participating municipalities would arrange 100 percent financing for qualified projects through private lenders, who would be repaid over terms of up to 20 years with revenue from a property tax assessment on an improved building.

The proposed repayment period would be much longer than conventional financing from a bank or other lender. This would mean payments that would be less than the reduced energy bills, allowing building owners to see savings right away, said Jonathan Cloud, executive director of NJ Pace, a nonprofit that has been promoting the project sine 2012.

“New Jersey could become the most energy-efficient state in the nation,” Cloud told the conference. “The challenge is implementation.”

The tax assessments would be purely voluntary, based on an individual owner’s decision to make energy-efficiency improvements under the PACE program, and would not represent any form of new tax, Cloud said.

Municipalities would be reimbursed for their administrative costs by the PACE program, while lenders would be encouraged to participate by the security of receiving revenue that is built into a building’s property-tax assessment.

The plan would be implemented by a bill that’s now in the Senate after being passed by the Assembly in January. The bill amends earlier legislation that was conditionally vetoed by Gov. Chris Christie in 2012.

The new bill differs from the original by allowing municipalities to pass PACE-enabling ordinances without state permission, as was previously required, and permits municipalities and counties to seek direct private financing without issuing bonds, a provision that has deterred debt-averse communities from participating so far.

The new provisions also expand the range of qualifying projects to include resiliency works such as hurricane-proof construction, flood proofing, and water conservation.

If it becomes law, the bill would allow the replacement of aging equipment that is wasting energy and bleeding owners’ bank accounts, Cloud said.

He cited an Atlantic City condominium building with an inefficient 60-year-old HVAC system that would qualify for a PACE program. “They are just throwing money out of the window but they don’t have the wherewithal to borrow for energy upgrades,” he said.

If approved for PACE financing, the tax assessment on the Atlantic City building would be made on the common property, and the management would then split the cost among the owners of each unit, Cloud said.

The inclusion of the residential sector in the new legislation marks an expansion from the previous plan, which covered only commercial, industrial, and multifamily buildings, as modeled on a program in Connecticut.

Bert Hunter, chief investment officer at Connecticut Green Bank, which develops clean-energy financing programs in that state, told the conference that Connecticut has a stock of old buildings, like New Jersey, and needed to cut energy costs that are the highest in the Lower 48 states.

Its program saves energy, creates jobs, boosts buildings’ market value, and reduces carbon emissions, Hunter said. He cited a small plumbing and heating business that obtained $145,000 in PACE financing to install a 55kW roof-mounted solar system that is expected to save the company $418,000 in energy costs over the life of the loan.

And private financing is easily available, he said. “Capital markets love it,” he said. “We are having no trouble raising finance for PACE.”

In New Jersey, the addition of the residential sector to the new bill has raised objections from the banking community, which fears that lenders could be hurt if future home sales are held up by the existence of a PACE tax assessment that would be transferred to a building’s new owner, Cloud said.

The bankers’ objections could lead to a veto by Gov. Christie, Cloud said, so are subject to negotiations ahead of an expected vote by the full Senate in the next 60 days. He said there is enough support in the Senate to pass the bill even without any changes.

The bill’s supporters argue that the PACE model, already adopted for commercial buildings by 14 other states, increases property values by making buildings more efficient, while cutting both individual energy bills and overall carbon emissions.

“There is no power greater than an idea whose time has come,” former Gov. James Florio told the conference. “This makes sense for the public and private sectors.”

Energy policy, once dominated by the need to secure fossil-fuel supplies, should now be concerned with energy efficiency and conservation but is struggling to keep up with rapid changes in those fields, and the PACE legislation would allow it to do so, Florio said.

“Big business understands that energy efficiency cuts costs,” he said. “The big problem is how do you sell this concept to people who have trouble coming up with the capital?”

Sen. Bob Smith (D-Middlesex and Somerset), lead sponsor of the Senate bill, called PACE a “silver bullet” that would boost statewide energy-efficiency goals and place increasing reliance on renewable fuels.

He accused the Board of Public Utilities of failing to do enough to promote energy efficiency, and said the PACE program would allow those goals to be achieved via the private sector.

“This is another opportunity for the private sector to do what the BPU has not been able to accomplish,” he told the conference via an audio link. “The private sector has a big role to play in making New Jersey and America more energy efficient because all of the capitalistic incentives are there.”

From a lender’s point of view, the program represents an attractive opportunity, said Sumit Takkar, director of Structured Lending Opportunities for Maple Securities, a financial services group with offices in Jersey City.

“It’s a fascinating concept, and it does address a critical need,” Takkar told NJ Spotlight. “I do generally believe in this opportunity. I think it’s a very capital markets-friendly product.”

Takkar said he expects to be doing business with the program, and predicted there will be a “huge amount of capital available” from the markets.

The long-maturity loans made under the program are likely to be attractive to investors such as pension funds and insurance companies that typically buy long-term debt securitized by banks like Maple Securities, he said.

Steven Maranz, president of All Seasons Quality, a Marlton-based energy-efficiency contractor for the residential and light-commercial sectors, said the program represents a “tremendous” opportunity for his company.

He said he expects to be able to offer energy-cost reductions of 25 percent to 30 percent with no upfront costs.

“The concept of PACE makes so much sense,” Maranz said. “This is something that can revolutionize the industry here for not only energy efficiency for smaller companies but also real estate.”

Jay Benson, a sales representative for Massachusetts-based Sylvania Lighting Services, said owners, managers, and tenants have been struggling to resolve the issue of who is going to come up with the capital to make energy-efficiency improvements, but that the PACE program resolves the issue.

“This is the solution for that. I’m passionate about it,” he said.

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