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Property Assessed Clean Energy

Property Assessed Clean Energy. Architects of PACE Contracts cover 200+ local governments; 25+ million people Contracts in 8 States Offices in 6 States. The Barrier: Upfront Cost . Cisco’s iPhone Bill $119/ month $1,428/ year $28,560/ 20 years. Cisco’s Utility Bill $129/ month

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Property Assessed Clean Energy

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  1. Property Assessed Clean Energy

  2. Architects of PACE • Contracts cover 200+ local governments; 25+ million people • Contracts in 8 States • Offices in 6 States

  3. The Barrier: Upfront Cost Cisco’s iPhone Bill $119/ month $1,428/ year $28,560/ 20 years Cisco’s Utility Bill $129/ month $1,548/ year $30,960/ 20 years

  4. 35% carbon emissions and energy usein the U.S. comes from buildings

  5. PACE A ‘Breakthrough’ Idea

  6. How PACE Works City or county creates type of land-secured financing district or similar legal mechanism Property owners voluntarily sign-up for financing and install energy projects Proceeds from revenue bond or other financing provided to property owner to pay for energy project Property owner repays bond through property tax bill (up to 20 years)

  7. Key Benefits for Cities & States Helps meet energy and climate goals Little to no city or state liability Promotes local jobs

  8. Key Benefits for Property Owners Repayment can transfer to new owner Saves money on utility bills Not based on personal credit

  9. PACE Bonds Key Investment Characteristics • Fixed coupon • 15- to 20-year amortization 8- to 12-year average life 6- to 8-year duration • Collateralized by funding for residential and small commercial properties for renewable energy and energy efficiency upgrades • Repayment Source: Funding paid back by property owners via their property tax bill. Obligation is senior to private debt, including first mortgage, on the property. • Pooling will be used for diversification

  10. PACE BondsRisk Mitigation • Funding, as part of the property tax obligation, is secured by developed residential and commercial property valued at approximately 10x the amount of the obligation • Underwriting guidelines help to ensure high quality originations • Reserve fund established to maintain cash flow in the event of delinquencies. Reserve fund sized at a multiple of the highest delinquency rates seen in the last several decades

  11. U.S. Fixed Income MarketPrice of Risk (November 9, 2010) PACE Bond comparable credit risk PACE Bond anticipated yield Source: Barclays Capital

  12. PACE Market Size Potential Residential Market Size • UC Berkeley Study (Jan. 2009) • 15% market penetration • $280 billion • 1 gigaton in annual CO2 reduction Potential Commercial Market Size • Johnson Controls Analysis • $18 billion annual commercial retrofit market • 360,000 jobs, equivalent of 31 coal-fired power plants • PACE component may be substantial

  13. National PACE Policy 23 States Have PACE Enabling Laws 5 States Have PACE Legislation Pending

  14. July 2010: FNMA & FHLMC Kill PACE - Broad based efforts are underway to restore PACE • Federal legislationwill be introduced in Congress that will afford PACE the same lien seniority status as all tax liens • Lawsuits have been filed against the FHFA by the following • State of California • Natural Resources Defense Council • The Sierra Club • City of Palm Desert, CA • County of Sonoma, CA • City of Babylon, NY

  15. PACE Alternatives Alternatives to PACE are limited to unsecured consumer loans or 2nd mortgages, both of which are inferior to the credit of a PACE lien $150 million in Federal stimulus funds earmarked for PACE are being repurposed towards PACE alternatives to mitigate risk and reduce consumer cost. Renewable Funding is working with a large, mission oriented bank interested in aggregating loans for future securitization. The bank would provide the senior capital and the subordinate capital would be provided by Federal stimulus funds and possibly SRIs.

  16. PACE Take-Aways • New twist on an old concept • Legislative process takes time • Standardization across programs key to reduce fragmentation • Emergence of a new asset class: PACE bonds • Challenges to PACE will be overcome

  17. Appendix: PACE Aggregation Model Funding Flow Installer Repayment Flow Project Cost Renewable Funding LLC Equity Investor Application Fee Rebate Property Owner Program Participant Tax Credit Project Loan Amt Property Tax Payment Financial Institution Senior Investor Bond Fund LLC Investment Vehicle Special Tax District City/County Sponsor Repayment Flow Trust Account

  18. Appendix: PACE Underwriting Guidelines Lender and Borrower Protections • Creation of debt service reserve • Clear title • No negative equity • No involuntary liens >$1000 • Max Lien to Value 10% • No property tax payment delinquencies in last 3 years • No bankruptcy in last 7 years

  19. Appendix: PACE Underwriting Guidelines Homeowner Protections • Expected Savings to Investment Ratio greater than 1 • Term of assessment should not exceed useful life • Mortgage holder should receive notice • Quality assurance • Rebates and tax credits • Education and data collection

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