Growing Commercial Clean Energy Financing in Utah
📅 Wed May 10, 2017 - West Edition #10
Meghan Dutton is the renewable energy segment manager of the Power Systems Division of Wheeler Machinery Co. She is an expert on C-PACE financing in Utah and assisted OED in their efforts to improve the Utah C- PACE program. Wheeler offers Cat Renewable Energy and Microgrid Solutions including comprehensive support from project conception, finance and design to installation, implementation and maintenance.
In May 2017, the Governor's Office of Energy Development (OED) will launch an updated version of Utah's Commercial Property Assessed Clean Energy (C-PACE) financing program. With the help of a substantial stakeholder group, OED introduced a proposal in the 2017 legislative session to revise the program processes and structures to encourage greater use of the financing tool.
What is C-PACE
C-PACE is a way to finance energy efficiency, renewable energy, water conservation, and other building improvement projects on commercial real property. C-PACE financing started in the United States in 2009 and there are currently 46 active PACE programs in operation in the country. As of December 2016, 988 commercial C-PACE projects have been completed nationwide totaling $322 million financed.
C-PACE offers many benefits not realized with traditional forms of construction lending. For example, C-PACE allows commercial building owners to finance 100 percent of the project costs (including soft costs) with no money down and fixed interest rates over the term of the assessment, up to 30 years.
The financing is secured by a voluntary assessment placed on the improved real property. This assessment may transfer to any subsequent owners if the property is sold, and the financing is treated like a property tax so it can be treated as off-balance sheet financing.
Most importantly, financed energy or water improvements help commercial building owners save money. In fact, C-PACE can often help building owners reduce their utility bills enough that savings exceed the building owner's C-PACE payments, making the project “cash flow positive” from day one. These projects increase property value, save money, and save energy and water. They also help grow the local economy, create jobs, improve air quality, and minimize the impact and uncertainty of fluctuating energy and water costs.
Recent Changes to Utah's C-PACE Program
Initiated in 2013 by Sen. Kevin Van Tassell and Rep. Gage Froerer, one project has qualified for C-PACE financing. While C-PACE has enjoyed long time support from Sen. Van Tassell and the building and financial communities, one of the challenges identified in the program structure was the requirement that municipalities issue bonds to raise capital. Municipalities were reluctant to issue bonds and the fees associated with bond issuance limited the scope of financially feasible projects. The new legislation provides an alternate option to bonding that supports a more flexible avenue for C-PACE financing.
OED will relaunch the Utah C-PACE program in June 2017, due to the successful passage of S.B. 273, sponsored by Sen. Stuart Adams and Rep. Francis Gibson. Improvements to the program include:
• Bonding is no longer required, greatly reducing the fees associated with each transaction. An assessment on the real property will still secure the financing, but rather than issuing a bond to raise capital, an assessment lien may be assigned to the third party lender.
• Program administration and all major tasks may be performed upon request by OED through a statewide C-PACE District, so municipalities will no longer need to allocate limited resources to businesses that want to participate in the program.
• In addition to the previous list of qualifying projects (energy efficiency, renewable energy, water conservation, electric vehicle charging infrastructure, and energy storage), the program was expanded to allow financing for seismic upgrades and extensions of existing natural gas distribution company lines.
With any piece of legislation, compromise is necessary. The new legislation does not permit renewable energy projects in electrical cooperative service territories. Also, the C-PACE District must enter into an agreement with the public utility for C-PACE projects in their service territory. Finally, renewable energy projects that serve existing loads must be two megawatts or less; projects that serve new loads are not limited in capacity.
Long Story Short
Due to the dedication and commitment of OED and all the parties who collaborated in this effort, C-PACE has been updated to overcome procedural hurdles and respond to feedback from Utah's C-PACE stakeholders. We look forward to growing this tool to help make clean energy improvements to commercial properties more cost-effective and easier to finance.