PACE is a new type of loan that finances energy efficiency and renewable energy projects. To qualify, a product must reduce energy costs. Solar easily meets this qualification, and virtually every aspect of a solar system is covered including the panels, inverters, racking and labor.
The biggest difference between PACE and other financing products available for solar is that the repayment is tied to property taxes. After municipal approval is obtained, an assessment can be placed on the client’s property. This assessment appears as a line item on their property tax bill to be paid at the same time as property tax payments, providing fast payment to your installation company.
Where is PACE available?
PACE legislation for commercial property is available in 29 states and D.C. However, legislation in many states requires bank consent for commercial installations, making them harder to obtain. PACE has proven successful for residential installations, especially in California where it represents more than $1.5 billion and 75,000 homes in the residential market. Other states are planning to open up residential PACE funding in the near future. PaceNation.us is the industry services association website that shows where there is enabling PACE legislation.
Opportunities for PACE in solar
For solar finance companies looking for high FICO leads, there is currently no opportunity for PACE in a monthly PPA. But for those using solar leasing companies, there is an opportunity for prepaid options because you can use PACE financing as the form of the prepayment and have relatively low interest rates for 20 or 25 years. Those with low FICO scores can also benefit from PACE financing as an alternative to a cash deal if they have sufficient equity in the home.
- No money down
- Competitive interest rates
- Lengthy payback period (about 25 years)
- Does not require a credit check
- Does not encumber personal credit – based only on home value
- PACE tax assessments may be transferable in property sale
PACE is different from unsecured loans because it does not require a FICO score and is only concerned with the amount of equity in the home. The total amount of the PACE financing plus the mortgage cannot be more than the value of the home, which makes it a viable option for people with low incomes and FICO scores below 650.
PACE is different from home equity loans because it does not require a formal appraisal, which allows for instantaneous, cost-effective processing of PACE transactions.
PACE market dynamics
PACE financing is an expanding market predicted to be available in at least five more states by the end of the year. Customers are encouraged to take advantage of the opportunity to generate PACE financing.
SPW: Can any solar installer qualify to offer PACE financing or is there a qualification process?
Bob: There is a qualification process. The minimum standards are a standing contractor’s license that enables you to do business in your state, proper insurance and a good review from the Better Business Bureau. There is potentially a milestone payment program that you can qualify for and that becomes more of a credit-related issue where we would need more financial information.