Steam Builds for ‘PACE’ Firms to Drive Energy Efficiency Retrofits

The Property Assessed Clean Energy (PACE) financing model is gaining momentum as a key driver of energy efficiency retrofits in both commercial and residential markets, attracting financings of over $350 million in recent months.

PACE is a method by which homeowners can pay for clean energy projects through incrementally increasing property tax bills over 10 to 20 years. After lengthy court battles and a good dose of political grandstanding, PACE programs are finally building steam. Accordingly, a key component of the clean energy initiatives outlined by the White House last summer includes freeing up further PACE financing.

This month, Renovate America, the largest provider of residential PACE in the US, announced that it had raised $90 million from investors. DFJ Growth, Silver Lake Kraftwerk, RockPort Capital Partners, Valor Equity Partners, DB Masdar, 400 Capital Management, MacQuarie Capital Funds and Spring Creek Group took part in the round. Renovate America also raised $50 million in equity funding in 2014.

The Wall Street Journal stated this round “valued the company at north of $500 million, according to a person familiar with the situation.”

Adding to the growing interest in energy efficiency financing, institutional investors, such as insurance firms, are primarily focused on securitized assets comprised of energy efficiency improvements. In response, large banks have begun rolling out bonds tied to energy efficiency.

In June, Citi and Renew Financial issued the first ever asset-backed security (ABS) transaction, comprised of unsecured consumer energy efficiency loans.  The entire $12.58 million issue was purchased by Calvert Investment Management.

And in 2014, Deutsche Bank structured the first energy efficiency ABS for residential energy efficiency, which was a $104 million offering secured under PACE.

More PACE Financings

Another leading provider of PACE financing for energy efficiency and water projects, Renew Financial, made news this month. It provides financing for both residential and commercial projects and also provides Warehouse for Energy Efficiency Loans (WHEEL) financing, which are unsecured loans for energy efficiency projects. The firm acquired Pennsylvania-based AFC First on Oct. 7, and Florida-based EcoCity Partners on Sept. 29. The acquisitions will help Renew Financial to expand its programs nationally.

The firm also completed its first securitization of residential PACE bonds by issuing $50 million in privately placed term notes in September. And the firm expects to issue another PACE securitization towards the end of this year, or early next year, according to Cliff Staton, an Executive Vice President of Renew Financial.

Renew Financial has a partnership with SolarCity targeted at small and medium-sized businesses (SMBs) utilizing PACE. The firm was founded in 2008 by Cisco DeVries, who originated the PACE financing model. And it recently raised a Series D venture round of funding, according to a firm representative.

In July, Ygrene Energy announced a $150 million PACE private securitization transaction with a large insurance partner by issuing Class A notes rated AA by Kroll Bond Rating Agency with a 97% advance rate. It’s the first-ever PACE securitization to include both commercial and residential PACE assets from multiple states. It will fund more than 6,200 energy and water conservation projects, according to Ygrene.

That same month, Sausalito, Calif.-based Clean Fund raised $60 million in new commercial PACE funding. The capital was raised from both venture investors and a major investment manager to support growth in the firm’s nationwide commercial property financing platform.

FigTree Financing, which has $60 million in committed capital for energy efficiency upgrades, raised a bond private placement of $809,000 two years ago.

Furthermore, Renew Energy Partners raised $790,000 in seed capital from Nexos Capital Partners also in 2013.

Yet, PACE has drawbacks for project equity investors.

PACE financing actually makes it more difficult to finance certain energy efficiency assets, such as efficient lighting, or upgraded HVAC systems.

CleanTechIQ surveyed a group of private equity investors interested in investing directly in energy efficiency upgrades in commercial buildings, and their responses indicate that this area is worth further consideration for business model innovation that will allow equity investors to directly finance energy efficiency projects.

Such commercial projects are generating high returns on investment and can pay back within two years, as well as reduce energy use in buildings as much as 30% annually.

Current estimates indicate that buildings contribute as much as one third of total global greenhouse gas emissions, according to the United Nations Sustainable Buildings & Climate Initiative.


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