MEMORANDUM. Property Assessed Clean Energy (PACE) Financing: Program History and Future Considerations in Palo Alto

Transcription

1 MEMORANDUM TO: FROM: DATE: SUBJECT: UTILITIES ADVISORY COMMISSION UTILITIES DEPARTMENT 5 February 1, 2017 Property Assessed Clean Energy (PACE) Financing: Program History and Future Considerations in Palo Alto This presentation provides background information on Property Assessed Clean Energy (PACE) financing, including the program's history and future considerations in Palo Alto. In particular, staff has provided the Commission with details associated with the Program to enable a discussion of PACE's performance in the context of Palo. Alto demographics and climate, as well as potential considerations for the future of the program in Palo Alto. ATTACHMENT Presentation: Property Assessed Clean Energy (PACE) Financing: Program History and Future Considerations in Palo Alto PREPARED BY: REVIEWED BY: REVIEWED BY: APPROVED BY: Lisa Benatar, Staff Specialist ~ Bruce Lesch, Manager - Utility Program Services JA Jonathan Abendschein, Assistant Director, Resource Management C/~ ED SHIKADA, Utilities General Manager Page 1of1

2 Discussion Item Property Assessed Clean Energy (PACE) Financing: Program History and Future Considerations in Palo Alto Utilities Advisory Commission February 1,

3 Elements of PACE PO Property Owner.. Contractor 2

4 Also have PP PACE Provider JPA Joint Powers Authority 3

5 PO How it Works Approval/Contract Process PP JPA.. PP Work $ PO.. 4

6 Additional Players L Lenders C County 5

7 PP tells JPA how much $ is needed JPA issues bonds PP bonds $ L 6

8 Revenue Stream to Lenders PO Tax assessment $ $ C PP $ L 7

9 Cisco DeVries comes up with idea for PACE Timeline 2009 Palo Alto passes resolution authorizing CaliforniaFIRST as PACE provider in Palo Alto 2008 CA passes AB 811, authorizing CA cities and counties to designate areas within which willing property owners can enter into contractual assessments to finance RE and EE 8

10 PACE UPFRONT COSTS PAYBACK PERIOD Main barriers that PACE is meant to overcome: Upfront costs Payback period 9

11 Pros with PACE Easy to qualify for PACE more projects PACE provider (PP) does hand-holding PP vets contractors Assurance from PP that project cost is reasonable No penalties for early repayment Helps City meet GHG reduction goals and create green jobs Competition: perhaps lowers costs 10

12 Cons with PACE Interest rates are high ~ 8% In our climate, and given low CPAU rates, savings typically don t offset payments PACE liens are in senior position Mortgage lenders don t like this May be difficult for Property Owner (PO) to get second mortgage May pose problems for PO selling property 11

13 2010: PACE is Dealt a Blow 2010: Federal Housing Finance Agency (FHFA) calls for pause in PACE programs 12

14 2010 Fannie Mae and Freddie Mac say they won t back mortgages for properties with PACE liens Timeline 2016 FHA initiative + AB 2693 both provide consumer protections 2014 Gov. Jerry Brown creates $10M mortgage loss reserve fund to ease federal concerns over insuring mortgages for PACE properties 13

15 32 States are PACE Enabled 14

16 Back in Palo Alto December 2009: Council passed resolution authorizing CaliforniaFIRST to operate as PACE provider in Palo Alto In 18-month period from summer 2014 through end of 2015: 23 applications 21 approved 7 projects funded No commercial projects (all residential) 15

17 PACE Activity Nationwide > 100K projects > $3B financed Source: PACENation, January

18 Palo Alto Demographics Median household income in Palo Alto: $151,370 US Census Bureau 2014 American Community Survey (ACS) 17

19 Palo Alto Demographics 20% 18% 62% Income Distribution in Palo Alto US Census Bureau, 2014 American Community Survey (ACS) 18

20 Highest-Level Income Often Eligible for Home Equity Loan 19

21 Lowest-Level Income Often Eligible for REAP People in Household Annual Income 1 $37,150 2 $42,450 3 $47,750 4 $53,050 8 $70,050 20

22 Residential Energy Assistance Program (REAP) Eligible projects, no cost to property owner (examples): Attic insulation Seal and insulate ductwork Weather stripping Furnace replacement Attic venting LED lighting Refrigerator replacement Repair walls 21

23 Palo Alto Demographics 20% 18% 62% Income Distribution in Palo Alto US Census Bureau, 2014 American Community Survey (ACS) 22

24 Mid-Level Incomes Relatively small portion of population 42% of Palo Altans are renters per US Census Bureau 2014 American Community Survey (ACS) data May qualify for personal loans 23

25 Analytics for Neighboring City Menlo Park, July 2014 to Dec homes 8 solar projects 24

26 Financing Options for Solar 5kW system, $4/W $20K cost (pre tax credit) 25

27 PV Calculator Assumes 5% Interest Rate 26

28 PACE Comparison PACE loan rate for solar ~ 8% Total cost over 20 years for 5kW PV system ($14K after 30% tax 5% 8% $28, % admin fee of $699 = $28,803 Δ = $6,629 30% higher 27

29 PACE Comparison to PPA 20-year cost, PACE: $28, year cost, PPA: $22,343 PACE 29% higher than PPA over 20 years PPA cost breakdown from PV calculator: 28

30 Conclusions Benefits of PACE financing may be less applicable in Palo Alto than in other communities Many property owners have better financing options Temperate climate means savings are typically below PACE payments Possible re-fi or home sale issues Small, engaged community with municipal utility means less need for outside EE/RE marketing 29

31 Discussion Item Property Assessed Clean Energy (PACE) Financing: Program History and Future Considerations in Palo Alto Utilities Advisory Commission February 1,