EXPAND THE PROPERTY-ASSESSED CLEAN ENERGY (PACE) PROGRAM

Property-assessed clean energy (PACE) is a financing mechanism that enables low-cost, long-term funding for energy efficiency and renewable energy projects. PACE financing is repaid as an assessment on the property’s regular tax bill and is processed the same way as other local public benefit assessments. 

Existing Nevada law sets forth the procedures for a governing body to acquire, improve, equip, operate, or maintain local improvement districts that include various types of projects, including energy-efficiency improvement projects and renewable energy projects (NRS 271.265-271.630). 

The Governor’s Office of Energy (GOE) sponsored AB 5 in the 2017 Session of the Nevada Legislature as PACE-enabling legislation, which provides for the creation, by a local government, of a local improvement district that includes an energy-efficiency improvement project or a renewable energy project on commercial private property. 

For a PACE program to be implemented, the local governing body must adopt a resolution for the creation and administration of a PACE program for the purpose of financing energy efficiency or renewable energy projects. The legislation does not mandate that the local government adopt a PACE program; it is strictly voluntary, but it does require that a resolution be adopted, and procedures must be put in place if the local government chooses to implement a PACE program.

AB 5 enables a lien to be attached to the property, which is superior to the mortgage and runs with the property, thus allowing the property to be sold and payments to continue through the next owner, just as property taxes are paid.

The City of Las Vegas, the City of Reno, and the City of Fernley have adopted commercial PACE (C-PACE) resolutions creating energy-improvement districts for the purpose of implementing their individual C-PACE programs. These programs are designed to help qualifying commercial, industrial, and multi-family (with five or more units) property owners access long-term financing for the installation of qualifying energy-efficiency improvements and renewable energy projects. 

This policy analysis explores how to further develop and adopt C-PACE statewide and the effectiveness of adopting a statewide residential PACE program.

GREENHOUSE GAS IMPLICATIONS

Assessing the greenhouse gas (GHG) impact of this policy is predicated on robust estimates of changes in net electricity consumption over time. While there are resources that identify emissions reductions through PACE programs elsewhere for both commercial and residential properties, this has not been modeled for Nevada. 

However, the PACE program will expand adoption of energy-efficiency measures necessary to reduce GHG emissions. Further analysis of implemented programs in the state would provide the data necessary to fully analyze the impacts an expanded C-PACE program would have. 

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CLIMATE JUSTICE

During the Green Building listening session one participant mentioned the PACE funding mechanism as capable of driving energy efficiency and conversion to green energy at the scale necessary to address climate change. 

Many other participants emphasized the jobs that energy-efficiency retrofits would provide in construction and other sectors. Other participants in the listening session, including one representing seniors and another representing Latinx businesses, emphasized freedom of choice rather than mandates. As a funding mechanism, PACE would meet the demand for free choice.

A potential positive impact would be through financing of improvements to new and existing low-income housing and multi-family housing more generally. Benefits cited include improved living conditions for tenants, reduced utility bills, and lower subsidies needed to make an affordable housing project viable. PACE helps building owners finance projects and the benefits trickle down to tenants of all income levels. Access to clean energy and an improved quality of life are coupled with increased building value for the owner, resulting in benefits for all parties. 

“Residential property assessed clean energy (R-PACE) financing is a game-changing financing mechanism that can help states deliver high-performance, net-zero energy (NZE) homes at no additional up-front cost.”

—Green Building Listening Session

In residential PACE, a potential impact to homeowners—particularly low-income homeowners—could arise from limited exposure to the program. This could be mitigated by ensuring the community has access to program design recommendations provided by the U.S. Department of Energy (DOE) that address the unique needs and potential vulnerabilities of low-income and elderly households. This would also help ensure that PACE financing is used appropriately and at the least cost for low-income households and other households that meet program eligibility criteria. Although at first glance PACE increases monthly or annual payments, it is important to note that 10- to 20-year amortization enables positive cash flow realized when the annual energy savings are larger than the repayment. PACE programs allow a property owner to finance the upfront cost of energy or other eligible improvements on a property and then pay the costs back over time. This affords a unique opportunity for property owners to implement improvements without a large upfront cash payment, bringing energy-efficiency upgrades within reach for many sectors of the population. The common misconception of difficulties selling the property can be dispelled if proper education is provided to the community, homeowners, realtors, and appraisers. Demonstrating the added value that comes with a property’s improvements is a first step but assisting homeowners in determining whether this is a good option for them is just as important to their success. 

Residential PACE can be an effective tool to ensure climate justice by creating opportunities that would otherwise be out of reach for many. Energy efficiency is a pivotal tool for reducing energy costs and enhancing home energy security in low-income households. In addition, PACE financing has the potential to help increase energy conservation, which would result in a reduction of GHG emissions and an improved quality of life for vulnerable populations. 

For some types of affordable housing it may be necessary to find out more about the current status of U.S. Department of Housing and Urban Development (HUD) rules regarding PACE and utility allowances. Current status of Federal Housing Finance Agency (FHFA) rules regarding mortgages and PACE financing may also be important for multi-family housing and residential housing.

The DOE toolkit provides on overview on how to utilize C-PACE financing to fund resilience projects to make improvements to buildings more resistant to natural disasters and other threats.

An in-depth review of residential PACE programs in other states would prove beneficial in determining the benefits and risks to vulnerable populations. A comprehensive review of these options and case studies may reveal residential PACE is an effective financing tool for improving opportunities for low-income and vulnerable populations to adopt energy-efficient measures.

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INTEGRATED ECONOMIC ASSESSMENT

Further analysis is needed to determine the potential fiscal and staffing impacts of expanding the current C-PACE legislation to include residential PACE would have on the state and local governments. 

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IMPLEMENTATION FEASIBILITY

New state legislation is likely not required to further develop and adopt the commercial PACE program statewide. The Nevada Legislature would likely have to enact new legislation to create a residential PACE program.

In 2017, the GOE sponsored AB 5, which enabled a commercial PACE program in Nevada. AB 5 gave municipalities power to create a district to finance one or more energy-efficiency improvement projects or renewable energy projects on private commercial or industrial property, which includes any real property except 1) residential dwellings with fewer than five individual dwelling units and 2) property financed by a government-guaranteed financing program that prohibits the subordination of the government’s interest in the property or otherwise prohibits a contract under AB 5 (NRS 271.6312(1)(a)).

The GOE director has authority to encourage further development and adoption of Nevada’s commercial PACE program. The director has authority to encourage the development of any sources of renewable energy and any energy projects that will benefit the State and any measures that conserve or reduce the demand for energy, or that result in more-efficient energy use (NRS 701.390(2)). Under NRS 701.380(1)(b), the director also has a duty to spend the money in the Trust Account for Renewable Energy and Energy Conservation to:

  1. Educate persons and entities concerning renewable energy and measures that conserve or reduce the demand for energy, or that result in more efficient use of energy; and 
  2. Create incentives for investment in and the use of renewable energy and measures that conserve or reduce the demand for energy, or that result in more-efficient energy use.

The director also has authority to evaluate the effectiveness of adopting a statewide residential PACE program. Residential PACE allows homeowners to finance energy efficiency, renewable energy, and other eligible improvements on their homes using private sources of capital. Under NRS 701.180, the director has authority to:

  1. Acquire and analyze information relating to energy and to the supply, demand, and conservation of its sources, and 
  2. Study means of reducing inefficient uses of energy and encourage the maximum utilization of existing sources of energy in the State.

To enable residential PACE in Nevada, the legislature would likely have to adopt new legislation. NRS 271.6312(1)(a) limits the PACE program to commercial and industrial properties.

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