The “Other” Type of Commercial Financing: PACE

REC SolarWhen a big box store, winery, or factory thinks about going solar, they often finance through a solar power purchase agreement (solar PPA). Both allow your business to go solar with no up front costs. But if you’re in California, there’s new way to finance solar with no upfront cost, and it’s called Property Assessed Clean Energy or “PACE.”

PACE is a win-win for both the business that wants to go solar and the PACE lender. It’s a win for the business because it can own a solar system with no upfront costs, get free electricity for 20 years, plus receive any available solar rebates and tax incentives. It’s a win for the lender because the PACE loan is paid back through a special tax assessment on the business’s property, which makes the loan extremely secure, even from bankruptcy.

PACE programs differ slightly from state to state, but the concept is generally the same. Here are some commercial PACE basics:

PACE legislation—which must be approved by individual counties in every state—allows private lenders to create a bond fund specifically for solar and energy efficiency loans. The legislation also allows the lenders to collect loan payments through a special tax assessment on the business’s property.

Because it’s a special tax assessment, the solar loan is extremely secure, since tax assessments must always be paid, regardless of bankruptcy. That’s great for the lender, but what are the advantages if you're a business that wants go solar? Actually, there are plenty.

The advantages for businesses include:

• No upfront costs. Just like a commercial solar PPA or a solar lease, your business gets to go solar and save money on electricity without any upfront costs.
• Easier credit. Because PACE is secured through a special tax assessment, it’s much easier for your business to be approved for a PACE loan than an unsecured loan. That means that new businesses without a long credit history or have low real estate equity due to the recession may still be eligible for a PACE loan.
• You own the solar system. With a solar PPA, you’re only renting the solar system for 15 to 20 years. You do save on your electricity bill with solar PPAs, but not as much as when you own the system. Plus, when you own the solar installation, you get to keep it running for as long as it lasts—typically 25 to 30 years, or even longer.
• You get to keep the rebates and tax incentives. If your city or state has any solar rebates, you get to keep that cash, plus any tax incentives, such as the 30% Federal Investment Tax Credit. With a solar PPA, the PPA company owns the system, so it keeps the tax incentives, rebates, and any other incentives.
• It’s a long-term loan. PACE loans can very by the lender, but they’re typically a 20 year loan. That makes your payments small, and they should equal an amount less than your old annual electricity bills, especially when you include the free solar electricity savings.
• The special tax assessment is transferrable. What if you sell your business or want to move your business to another location? The special tax assessment will be transferred to the new property owner, who will continue to make any remaining payments through the special tax assessment—and continue to receive the free electricity through the solar panels. In short, the solar system always stays with the original PACE property until the loan is paid in full.

Like any loan, there is interest, and the rate will vary based on the PACE lender and the state. To qualify for a commercial PACE loan, you must own your property and be a for-profit business. Consequently, municipalities and non-profits are not eligible for PACE loans.

PACE programs are available throughout the entire state of California, and there are a number of lenders. Other states have been slower to adopt PACE, but that’s changing. There are now 29 states that have PACE legislation in place. To see if there’s an active PACE program in your area, check out www.PACEnow.org.

Not sure if PACE or a solar PPA is right for your business? Contact REC Solar and we’ll go over the available commercial PACE programs in your area and discuss whether PACE or a solar PPA or a solar lease is the best option for you.

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