How can communities advance energy savings in an economic trough? The well-known but still relatively underused C-PACE financing model provides a clue.
One example from Connecticut shows how a mix of tax savings and technical assistance can move owners from standstills to savings.
As often proves out, coaching makes a crucial component in encouraging owners to reduce their carbon footprint and make their properties more productive.
For John and Jenice Thompson, winter couldn’t pass soon enough. With the onset of October, the Bishop and Co-Pastor, respectively, of Calvary Temple Christian Center had come to expect months of grueling trials with their fickle furnace. To avoid unexpected delays during weekly services, “we would go in on Friday night and turn the furnace on to make sure that everything was right for Sunday morning” – a burdensome process that worked only occasionally, said Bishop Thompson in an interview with the Clean Energy Finance Forum. Though they spent copious amounts of time and money on temporary repairs, such efforts, recalled the Bishop, were “nothing but band aids.”
But then they heard about C-PACE.
In short, C-PACE, or Commercial Property Assessed Clean Energy, is a financing initiative that facilitates the accessibility and affordability of clean energy upgrades for commercial buildings. Established in 2011 through the Connecticut Green Bank, the program has since expanded to 22 states across the U.S, providing upwards of $1.5 billion in financing to date. With additional states in the process of passing their own PACE-enabling programs, C-PACE is poised to continue its growth trajectory. This article examines the C-PACE program in Connecticut as an exemplar of effective clean energy financing, highlighting the key drivers of its success and proffering a blueprint of best practices for other nascent Green Banks to utilize in their own endeavors to engage in C-PACE.
C-PACE enables commercial property owners to secure up-front funding for clean energy upgrades and make subsequent repayments through periodic assessments on their property tax bills. The typical process is as follows: a building owner decides to pursue C-PACE for the installation of a renewable energy upgrade (e.g. solar panels), working closely with an independent contractor and a qualified lender to finance and construct the project upon approval from the state-level Green Bank. After the successful completion of these steps, the building owner will begin to see a “PACE Assessment” line item on their property tax bill, through which they will repay over a specified period of time the cost of the energy upgrade. In tying repayments to building owners’ property tax bills, C-PACE effectively eliminates much of the default risk associated with these loans: in 2017, the overall default rate for C-PACE loans was less than 2%.
To be eligible for this program, clients must be deemed “commercial property owners,” a term that encompasses most privately owned, non-residential buildings (such as office spaces, retail locations, multi-family properties, non-profit facilities, industrial spaces, etc.), and they must be pursuing cost reduction projects through renewably sourced energy. More specifically, viable projects must possess a savings-to-investment ratio (SIR) that is 1 or greater, where “savings” represents the total dollar amount saved from an energy efficiency improvement over its useful life (a solar system might save, for example, $1 million over 20 years) and “investment” entails the total amount property owners will pay over the life of the improvement (e.g. the cumulative repayment schedule). An SIR that is 1 or greater signifies that the building owner is projected to save more money from the program than they will ultimately spend on the upgrade. From our research, successful C-PACE programs include four anchors.
Robust Contractor Support Structures
The C-PACE program relies on knowledgeable and well-resourced contractors to bring in and execute energy projects. As such, a critical aspect of a Green Bank’s responsibilities in ensuring the success of C-PACE within its state is to equip clean energy contractors with the requisite tools to talk capably with clients regarding the program’s benefits.
For the Connecticut Green Bank, such support typically comprises monthly workshops that “help contractors understand what the program is and how it can help them grow their businesses,” said Alysse Lembo-Buzzelli, a Manager at Connecticut’s Green Bank. Offering these workshops, says Lembo-Buzzelli, enables contractors to gain a greater understanding of the program’s financial innerworkings and enhances their abilities to garner client interest in energy improvements.
Matt Menard, a Senior Account Executive within the contracting arm of Trane Inc – a global manufacturer of commercial equipment – echoes Lembo-Buzzelli’s remarks. Speaking of such workshops, Menard affirmed that “they were very informative, very well organized . . . and very well attended.” Coming out of the session, contractors “have marketing materials [they] can bring to customers . . . [and] a high-level overview of what the program looks like . . . you come out of there with enough information to get in front of a client early in the process of developing a project and have a conversation” regarding whether C-PACE is right for them, added Menard.
In Connecticut, Green Bank support extends beyond regular workshops: representatives from the Green Bank often make themselves available to attend building owner meetings with contractors to assist in explaining the minutia of C-PACE financing. “If a building owner is set to do a clean energy project, but they’re not sure how to pay [for the upgrade], we can come in and help explain how C-PACE could be beneficial to them,” said Lembo-Buzzelli.
Though there are many resources external to those of the Green Bank for the purposes of contractor training and client information, “the one-on-one contact is really helpful,” said Menard. “Having a financing partner in the room with you brings a lot of credibility . . . and helps drive understanding with that client.”
Menard added that seeing “the face of the person who’s going to be responsible” for administering the program lends a certain degree of legitimacy to the program and is helpful for garnering client interest in the program.
In addition to support for contractors, the Connecticut Green Bank offers services directly to clients. Speaking of their C-PACE experience, the Thompsons explained that they “got in touch with [a representative] from the Green Bank, and she walked us through the whole financing process and guided us as to what we should do. We were even able to sit in on meetings with them, and they were the most helpful in . . . comforting us [and] telling us about the no upfront costs and how to make repayments.” The Thompsons credited this continued presence from the Green Bank as a critical aspect of their positive experience with C-PACE. “It was a whole process that was made easier because we were able to talk to someone personally . . . They made us feel so comfortable going through the transition.” Having a team dedicated solely to Commercial and Industrial programs (such as C-PACE) enables the Connecticut Green Bank to provide this degree of support to clients interested in the program but tentative to move forward without a robust understanding of its financial structure.
A Clear Legal Framework
The Green Bank is the central administrator of the C-PACE program in Connecticut, and in this capacity, it is critical that they provide a clear legal structure for the financing process. Jessica Bailey, the CEO and Co-Founder of Greenworks Lending – a leading capital provider for C-PACE financing – explained that “being very clear from a state perspective about how they’re going to review and approve these projects is super helpful for groups like ours that are trying to make sure we give good guidance to our borrowers and stay within the lines.” Since C-PACE engages many different players, this element of clarity can be critical to the program’s success: every step in the process, “from approval to placing the tax assessment to collecting the assessment to remitting that collected assessment to the lender . . . require[s] a set of legal documentation to govern it,” explained Bailey, and failure to provide clarity of this nature can result in confusion and inefficiencies.
Consistency across Municipalities
Municipalities within a state need to opt into C-PACE in order for building owners to leverage its financing. In this respect, the Connecticut Green Bank is proactive about reaching out to economic development coordinators, sustainability task force leaders, and community representatives to “let them know that [C-PACE] is an economic development tool that could help retain businesses or attract new businesses” within a municipality, said Lembo-Buzzelli. In fact, Greenworks Lending estimates that C-PACE has created or otherwise supported around 2,400 clean energy jobs across Connecticut, while PACENation (a national nonprofit dedicated to expanding access to PACE-related loans) estimates that this figure reaches upwards to 18,000 jobs at the national level.
As a result of these efforts, most municipalities in Connecticut have opted into C-PACE: “having this continuity across the state is a big benefit because it allows contractors to work wherever they want in the state of Connecticut and not have to worry about the program changing from town to town,” added Lembo-Buzzelli. Thus, a crucial element of C-PACE’s flexibility and success in Connecticut stems from the Green Bank’s proactive outreach efforts to municipalities, which facilitates its implementation as a state-wide program. Larger states looking to adopt C-PACE programs of their own may wish to invest in similar (or perhaps even more rigorous) outreach efforts to maintain state-wide flexibility.
Aside from informational sessions with contractors and municipalities, the Connecticut Green Bank actively runs various marketing campaigns for C-PACE: two existing projects are Energy on the Line (a grant program for manufacturing facilities) and Charged up CT (a program that enables building owners who use C-PACE to receive free electrical vehicle charging stations). These promotional programs are another important tool that the Green Bank uses to publicize and garner interest for the program.
What More Can be Done?
The Connecticut Green Bank’s C-PACE program serves as an exemplar of C-PACE financing, surpassing 300 closed projects at the end of 2019, while granting over $163 million for Connecticut building owners and facilitating over $270 million in energy cost savings to date. Such cost reductions may prove beneficial for business owners as they navigate increasingly stringent budget constraints amidst a looming economic downturn, freeing up cash for rent payments, payrolls, or operating expenses, more broadly.
Even so, the C-PACE program in Connecticut – and more broadly, C-PACE programs across the country – may further benefit from legislation that hones in on demand-side policies: for instance, implementing benchmarking standards that hold commercial buildings responsible for reporting their energy consumption levels may impact prospective clients’ decision-making calculus on the topic of C-PACE engagement. Such standards, says Bailey, can “drive interest among building owners in thinking through how they might reduce energy demand,” which may further contribute to the program’s growth.
Still, there is much to be learned from and said about Connecticut’s C-PACE program, with the Thompsons alone saving around $270,000 in energy reductions over the useful life of a single upgrade.
Now, with a lightweight, high efficiency gas boiler – the “Hondas of furnaces,” as the Bishop described it – “we can turn the [machine] on at 6 in the morning and at 9 we’re good to go.”