News and analysis about energy in California with an eye toward renewables.

Federal Housing Agency Gets in the Way of Rooftop Solar

Sacramento, now home to the largest Property Assessed Clean Energy loan in U.S. History. | Photo: Wayne Hsieh/Flickr/Creative Commons License

A popular program by which homeowners can finance solar panels and pay off the costs on their property tax bills may have been needlessly suppressed by federal lenders, but a Tuesday announcement in Sacramento shows that the program can still work for energy efficiency upgrades at commercial properties.

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Property Assessed Clean Energy (PACE) loans are an innovative program launched in California cities like Berkeley and Palm Desert that allowed homeowners to borrow money from local funds and use it to install rooftop solar on their buildings, with repayment set up by way of a recurring charge on the homeowner's property tax bill. The most popular PACE loan programs were set up so that each property owner would save more on energy costs than they'd repay in that same period on their tax bill, thus providing a financial incentive for the household.

Despite the Obama administration's explicit support for all things renewable, however, the Federal Housing Finance Agency, which runs the mortgage agencies "Fannie Mae" and "Freddie Mac," objected to PACE programs. Most state laws explicitly make property tax obligations come first when property owners have trouble paying off their debts. The FHFA decided that PACE loans paid back via property taxes thus constituted an "additional encumbrance" on properties, refusing to back mortgages for properties with PACE loans attached. That's despite the fact that those loans actually meant people had more cash on hand to do things like make mortgage payments. That pretty much shut down the whole program.

A final ruling on the FHFA's policy toward PACE loans is due in September.

In the meantime, the ruling doesn't apply to commercial properties in California, and as the Environmental Defense Fund's Kate Daniel reports, a commercial property owner in Sacramento just took the lead in Commercial PACE financing for energy efficiency improvements.

The property in question is Metro Center, four buildings in a suburban-style mixed-used business and residential complex just north of downtown Sacramento. Metro Center's owners, Seattle-based Metzler Real Estate, have secured $3.1 million in PACE funding for improvements to their heating and cooling systems, as well as upgrades to energy management systems that will save the property owners $140,000 on their utility bills each year.

That makes Metro Center's PACE loan the largest in U.S. history.

The funds were administered by Clean Energy Sacramento, a project of the commercial PACE lender Ygrene Energy Fund.

As Daniel explains, property owners like Metzler find distinct advantages in PACE-style financing arrangements for energy upgrades to their properties.

[T]he financing is tied to the property itself, rather than to the owner. This means that if the owner wanted to sell the building, it would not have to pay off the balance of the financing, but rather transfer to the next owner's property tax bill. By doing this, PACE addresses a key obstacle in commercial real estate markets: frequent ownership turnover where owners are hesitant to make long-term investments.

Seems to us that's a pretty good incentive for homeowners who want solar panels as well. With any luck, FHFA will get with the rest of the Obama administration's program and stop blocking PACE loans for home rooftop solar.


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About the Author

Chris Clarke is a natural history writer and environmental journalist currently at work on a book about the Joshua tree. He lives in Joshua Tree.
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The FHFA has completely and utterly blown it on PACE, which could have already revolutionized our entire energy infrastructure and created millions of sustainable, long term jobs while hugely reducing GHG emissions. At NO cost to anyone at all. None. To anyone. At all.

Instead, they sided with their monopolist banking cronies and had the audacity to pretend that PACE loans, not, say, fraudulent lending practices, were threatening the sanctity of their mortgages, and preventing PACE was a critical step in the security of Fannie and Freddie. Never mind that, as you say, homeowners have more cash to afford mortgages, that the appraised value of the home immediately increases proportionally to the value of the improvement and PACE loans default at rates far lower than other loans. Because those are facts, and FHFA is not about facts. They are about serving their corporate masters.

The commercial thing is fine, whatever. The truth is, as a way to cheat on their property taxes through a loophole in Prop 13, commercial property owners pretty much never actually transfer their properties, so the PACE "running with the property" scheme is basically pointless. Not to mention that commercial enterprises could already easily secure business loans against offsets in utility bills, so they don't need PACE.

We wouldn't need PACE either, if we had generous (not dumb) Feed in Tariffs, because banks would freely loan us the money with that kind of guaranteed income stream, and even better, we could easily establish on-bill financing systems so utilities could use the power produced as collateral for a loan, irrespective of the status of a ratepayer's account and/or a vacancy in the property. Even when a house is empty, the panels keep cranking out cash. But instead, we get no PACE and no FITs. We get Net Metering, a massive handout to energy hogs, and a useless mess for the 99%.

So, if the Feds find climate change SO urgent that we need to immediately slaughter millions of acres of deserts for greenwashed power production, why is it not urgent enough to do something that will actually help, on a much greater scale, with no downsides? You really gotta wonder...