PACE financing: What you need to know

If you want to install a solar energy system on your property, one of the first questions you've probably asked is, "How will I pay for it?" There are many financing options available today for homeowners who want to enjoy the benefits of solar. In many areas, an increasingly popular option for home energy improvements like solar is Property Assessed Clean Energy (PACE) financing.

Property owners who aren't able to or interested in buying solar panels in cash can finance their solar energy system with a solar loan or a solar lease or power purchase agreement. PACE financing is a special type of financing that is available in areas where the local government has allocated funds.

Here's the general process for using Property Assessed Clean Energy (PACE) financing to install solar panels on your property:

1. A county, local, or municipal government passes legislation that establishes a PACE program and makes funds available to investors, usually through the sale of municipal bonds.

2. An authorized PACE lender (such as Renew Financial or Ygrene) provides those funds to property owners who want to make clean energy improvements, like installing solar panels on their home or business.

3. Property owners repay the financial institution through an assessment attached to their annual property tax bill.

If you are a residential or a commercial property owner, you can use PACE financing to pay for new heating and cooling systems, insulation, and other energy efficiency upgrades in addition to solar panels.

While PACE financing provides homeowners with funds to make upgrades to their home, it is different from standard home improvement loans in a few important ways:

1. Instead of repaying the loan in monthly installments, property owners pay their PACE funds back once a year for a fixed term (10-20 years) through an assessment that is added to their property tax bill.

2. When you install solar panels using PACE financing, you immediately begin to enjoy the financial benefits of your solar panels without having to pay anything upfront. Because the amount of money that you save in electricity costs throughout the year will be significantly greater than the annual increase in your property taxes, you will always benefit from the net gains of your solar investment.

3. If you sell your property before your solar energy system is completely paid off, the rest of the money owed transfers to the new property owner. Unlike most other loans or leases where transfers are negotiated separately, PACE financing is attached to the property itself, not the owner – simplifying the transfer process. Plus, the new owners won't mind, as they'll immediately enjoy the financial benefits of solar panels on their new property!

4. While funding amounts and interest rates for traditional loans are determined by your credit, PACE financing amounts are determined by the tax capacity of your property (i.e., how much your property is worth). For property owners who don't have good enough credit to access favorable loan options, PACE financing is a great alternative for receiving the financial benefits of solar with no upfront costs.

PACE financing is currently available for homeowners in California, Florida, and Missouri, and legislation exists in some form in 36 states plus Washington D.C. At the end of August 2015, the Obama Administration announced new actions that will remove barriers for residential PACE financing for single-family households.

While the Federal Housing Authority (FHA) initially warned investors against buying mortgages with PACE assessments attached to them the Administration’s recent actions show it’s changed its tune, and is now encouraging more municipalities to pursue PACE financing legislation.

Find out if PACE financing options are available near you, and don’t forget to compare your financing options when considering solar power for your household. For more about PACE financing, you can also download Department of Energy’s fact sheet about PACE programs.

This post first appeared on Mother Earth News.