John Harris, vice president of Kansas City Country Club Bank's Public Finance Division, may not look like an energy efficiency crusader, but he has become just that as a result of his efforts to promote Property Assessed Clean Energy (PACE) financing.
PACE, which was passed by the Missouri Legislature in 2010, offers a unique opportunity for commercial, agricultural and industrial property owners to finance energy improvements through liens on property that can be transferred upon sale.
"I see PACE as a game changer for financing energy efficiency and renewable energy retrofits," says Harris. Not only does PACE provide 100 percent up-front financing, it also addresses a key barrier, which is that no one wants to make a capital investment when they do not think they will stay with a property long enough to see the full benefit. PACE removes this obstacle because essentially it attaches the obligation to the property.
PACE enables interested cities or counties to establish or join a Clean Energy Development Board, which has the authority to issue low-interest bonds. The bond money is used to provide funding for the program. In other words, the PACE Act provides a method of financing energy projects with private capital under the oversight of a governmental body.
According to Harris, the reason this tool is not currently being used to full potential is that PACE financing cannot be efficiently accessed on a county by county or community by community basis.
"The main challenge we face with PACE financing is if it's not available to everyone, it won't be available to anyone. The capital is provided through the issuance of bonds, and with that type of financing you must have a certain scale. So one community, even if it's a large community, will not be able to get the number of applicants needed to make the program sustainable," he explains.
Since part of Harris's work as a banker is to assist political subdivisions with project financing, he became involved in the start-up of the Missouri Clean Energy District (MCED), Missouri's first Clean Energy Development Board. MCED's current members include Jefferson City, Cole County, Hazelwood, Ferguson, Charlack, Olivette and Branson, but Harris maintains there are still not enough eligible commercial property owners to reach the scale needed for securing bonds on the most efficient terms.
For this reason, Harris urges commercial property owners who are interested in PACE financing to lobby their local municipalities to apply for membership to MCED. Municipalities can establish their own boards, but joining the established district without cost is a simple way to bring PACE financing to every community in the state. Harris, who describes himself as a community banker, believes the true value of a statewide PACE program is the potential to offer capital investment opportunities to all types of property owners.
"I think the long-term prospect for PACE is that you have a market program where even Miss Jones with a grocery store in Unionville has access to capital. Then you have a situation that helps provide market efficiency and better rate structures for bigger entities. When before have we seen a cooperative program where the little communities can help the big ones?
"Once PACE is operating statewide, commercial property owners will only have to take a few steps to access financing," he explains, "Suppose you learn that a solar project would substantially reduce your energy costs. First, you would need a solar contractor to provide an assessment of the energy savings along with a quote for the work that needs to be done. Then you would apply to the MCED for funding of the project, and if the board determines that the project represents an economic benefit to the property owner through energy savings, the project will be approved."
"When the project is completed, the contractor is paid by the District and a special assessment is attached to the property for the term of the loan. The board will finance 100 percent of the project at a fixed rate for up to a 20-year term," says Harris.
He points out that Missouri is still many communities away from making this type of accessible energy efficiency and renewable energy financing a reality across the state.
"Unless PACE financing is structured for the entire Missouri community, it will be a flash in the pan and ultimately it will be a wasted opportunity," Harris warns. "On the other hand, if every Missouri municipality embraces it, the capital costs will get cheaper and cheaper for everyone."
Harris looks to a possible future for PACE and adds, "Everyone will have access to capital to improve the energy efficiency of their property, and the entire state will have increased energy security."
This story was featured in the May 2012 newsletter