Artistream Energy, Inc.

The New York legislature passed a bill in the emergency session Monday evening (November 16th, 2009) allowing municipal governments to set up renewable energy (and energy efficiency) finance programs by incorporating loans into property tax assessments.  PACE (Property Assessed Clean Energy) programs are a recent innovation in finance and have emerged nationwide over the past year during which time 15 states have passed enabling legislation. Many of the previous PACE programs set up in other states rely on the local town or village to issue bonds to pay for the program. The New York program is designed to allow municipalities to leverage the $400M in recovery act (ARRA) funding from the federal government that has recently been made available for such programs.

This program will eliminate the upfront cost for certain energy improvements (such as solar energy) by allowing property owners to pay for the improvements over 15-20 years through an increase in their annual property taxes. There will be interest charged on these property loans and the property owner should investigate whether they qualify for a second mortgage or equity line that has a lower interest rate. Each municipality that participates will most likely charge a different interest rate depending on their cost structure for administering the program.

So how will this program work for the business owner or homeowner who wants to install a solar energy system or energy efficiency improvement? Well first off the expected life of the installed improvements must be at least as long as the repayment period. In addition, the improvement must be a permanent addition to the property. Thus, when a property changes hands, the new owner will continue receiving energy generation or savings and the municipal government will continue to receive the additional property tax income. The program cannot finance portable items such as efficient light bulbs and appliances because they can be easily removed when the current owner leaves. Examples of eligible energy improvements are solar PV, solar thermal and geothermal systems.

The property owner would finance the net installation cost after any NYSERDA rebates through the local town or village that is participating in the PACE program. In addition, they would be eligible for the 30% federal investment tax credit (ITC). If a Feed In Tariff (FIT) is passed in 2010 or 2011, then someone who implemented a solar PV system via PACE would also be eligible to sell their renewable energy production credits to the local utility at the higher FIT rate.

PACE financing offers many advantages to homeowners and business owners, including a long repayment period, potentially lower interest rate, tax-deductible interest payments, and an easier application process than applying for a second mortgage or home equity line. Unlike most other financing options, the repayment obligation transfers when the property is sold, allowing property owners to invest in improvements that will pay back over a longer time frame than they may intend to own and utilize the property.

Though the New York State Legislature passed this bill, it may be 6 months to over a year before municipalities roll out the infrastructure necessary to administer this program. Local towns and villages will have to identify key staff and advisors for this program, design the program to meet renewable goals within the community, get input from key local stakeholders, formally create the special tax district, design a tracking / accountability and reporting structure and finally launch and market the program.

This new program is designed to lower greenhouse gas emissions locally, benefit the bottom line of business owners / homeowners and assist in creating new “Green” jobs locally. If you are interested in taking advantage of this program, I encourage you to contact your local government and make them aware of PACE. If you are in the renewable or finance industry and can provide guidance or assistance to your local government, this will speed the rate of adoption and benefit us all.

We can thank organizations such as NYSEIA (New York Solar Energy Industry Association) who have been working with several legislators on this bill over the past year – particularly Sen. Antoine Thompson, Assemblyman Steve Englebright and Assemblyman Andrew Hevesi.

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