PACE-ish Developments

The Property Assessed Clean Energy (PACE) bonds in the US market, where energy efficiency retrofits for residential and commercial buildings can be financed upfront by municipal bonds, has seen plenty of market developments but few bonds yet to achieve scale. 33 states have now enabling legislation in place with 7 states facilitating 16 different PACE programs which focus on commercial buildings in the main. The use of bonds varies from program to program. Most programs have open-market models where programs pair each project with a prospective funder such as the CaliforniaFIRST which has been authorised to issue USD14bn in bonds. Other programs have one administrator which provides finance such as the Ygrene Energy Fund. Those programs that actively use municipal bonds are relatively few as they await projects to achieve the scale necessary to justify transaction costs.[1] USD12m has been issued in Toledo, Ohio to fund 50 commercial building projects while the City of Ann Arbor, Michigan recently issued $500k to fund projects.[2]

Unfortunately, PACE bonds for residential buildings resembles more of a courtroom drama than a hive of bond market activity. In August 2011, the Federal Housing Finance Agency’s direction to not allow Fannie Mae and Freddie Mac to underwrite mortgages on properties with PACE assessments, was struck down by a US District Court in California. The FHFA was ordered to initiate an open rulemaking process which had received over 40,000 comments by September 2012. While assessing the public inputs, the FHFA had also appealed the court’s decision and in March 2013, won the appeal, leaving the push for residential PACE back to square one. Advocates may well have to resort to bipartisan legislation in Congress to allow residential PACE programs to go ahead.[3]