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Jerome Lyle Rappaport
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Edward Glaeser
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Stephen P. Johnson
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Greg Massing
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Vivien Li
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Guest contributors

Monika Bandyopadhyay
Suffolk University Law Student

David Barron
Harvard Law School and former Deputy Counsel for the Office of Legal Counsel in the US Department of Justice

Linda Bilmes
Senior lecturer in public policy at the Harvard Kennedy School. Assistant Secretary of Commerce during the Clinton Administration.

Brandy H.M. Brooks
Director, Rudy Bruner Award for Urban Excellence, Bruner Foundation

Felicia Cote
Rappaport Fellow, Harvard Law School/Harvard Kennedy School.

Amanda Eden
Suffolk University Law School student

Sara Farnum
Student, Suffolk Univ. Law School

Kristin Faucette
Student at Suffolk University Law School

Benjamin Forman
Research Director, MassINC

Arthur Hardy-Doubleday
JD/MBA student at Suffolk University Law School and the Sawyer School of Business

Theodore Kalivas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

David Linhart
Student, Boston University School of Law

Antoniya Owens
Research Analyst, Mathematica Policy Research, Inc.

Susan Prosnitz
Senior Advisor, TSA, Washington, DC

Ben Thomas
Boston Green Blog, Dukakis Center for Urban & Regional Policy

Matthew Todaro
Student at Boston College Law School

Alexander von Hoffman
Senior Researcher, Joint Center for Housing Studies

Brett Walker
Student, Boston College Law School

Margarita Warren
Student at Suffolk University Law School

Solar Boston and Property Assessed Clean Energy (PACE)

Wednesday, March 23rd, 2011
By Ben Thomas

The Solar Boston initiative continues to outshine many other solar programs around the country. In addition to the Solar Boston Interactive GIS Maps, Boston has also adopted measures to facilitate the completion of solar projects. Last fall, the Boston City Council approved Mayor Menino’s solar permitting guidelines, which reduced solar project permitting fees up to 60%. In addition, Boston has created the Solar Permitting Guide to streamline the permit process and educate residents, businesses, and solar installers. The guide provides information about PV technology, net metering, installation methods, permitting, and government incentives.

Other cities throughout the country have adopted Property Assessed Clean Energy (PACE) programs to spur renewable energy projects. Under PACE programs, localities issue bonds to create a loan pool to help local property owners finance renewable energy and efficiency projects. Property owners repay their loans through assessments on their property taxes or other locally collected bills over the course of a decade or more. The idea of attaching the loan directly to the property is that the loan for the improvement stays with the party that will benefit from the improvement, rather than the property owner who might sell the property. By extending loan repayment over decades, the monthly savings from energy cost reductions are in closer proportion to the monthly repayment of the project’s costs.

PACE programs began in Berkeley, CA, in 2008 with Berkeley First. Through the Berkeley First’s pilot round, 13 property owners completed solar installation projects. In November 2010, Berkeley released the findings of the program valuation, which involved participant surveys and a cost benefit analysis. Of the 40 original applicants, twenty-seven applicants withdrew after being accepted into the program. The evaluation states that the most prevalent reason for withdrawal was the program’s relatively high interest rate. The high interest rate is attributed to the small size of the pilot round, the newness of PACE financing, and the poor conditions of the financial market in 2008. Fortunately, nine withdrawals reported that they completed solar energy projects with other funding options like home equity loans. Among the survey respondents that completed a project through Berkeley First, 64% expect their PV system to generate 75% or more of their electricity consumption. All respondents reported that Berkeley First was a significant motivator in the decision to complete a project.

Through the cost benefit analysis, Berkeley calculated that over a 25 year window the estimated net present value of the program is negative $71,000 on a $326,000 total investment. If carbon savings are added in, the estimated net present value changes to negative $48,000. Combined with the survey findings, the results of the pilot round are clearly mixed. However, the evaluation indicates that there are ways to improve future project’s cost effectiveness and overall success. First, undertaking an extensive outreach education program can help to motivate eligible property owners to utilize private financing options in place of public financing. This will help to reduce withdrawals and also ensure that public funds are allocated to individuals that are least able to acquire private financing. In addition, the evaluation indicates that the most economical projects were those in high energy use sites and also that smaller PV systems tended to be more economical. So, if future programs are designed to promote projects with the greatest potential for savings, cost effectiveness is likely to increase. Finally, increasing the program’s size may help to attract more funding options with lower interest rates. This will improve the net present value of a program and also reduce program withdrawals. Berkeley First provided valuable insights into the potential of well-designed PACE programs to spur renewable energy projects.

Since Berkeley First, 23 states and D.C. passed legislation that enabled local governments to create PACE programs. Massachusetts is not among the states that enable PACE programs. Unfortunately, in July 2010, the Federal Home and Financing Agency (FHFA) issued a directive to Fannie Mae, Freddie Mac, and Federal Home Loan Banks that severely restricted their involvement with properties involved in PACE programs. The FHFA’s stated rationale is that these debt obligations could threaten the housing market, lenders, and tax payers. In August 2010, Freddie Mac issued a bulletin stating that it will not purchase “mortgages secured by properties subject to PACE obligations that provide for First Lien priority.” Because of these actions, most residential PACE programs were suspended.

Litigation against FHFA’s directive is currently underway in California, New York, and Florida. In July 2010, Senator Barbara Box sponsored the PACE Assessment Protection Act of 2010, but the bill has not moved since its introduction. The bill would “ensure that the underwriting standards of Fannie Mae and Freddie Mac facilitate the use of property assessed clean energy programs to finance the installation of renewable energy and energy efficiency improvements.” Last month, the National Association of Counties and the League of Cities sent a joint letter urging Congress to support PACE programs. The Nation Association of Regulatory Utility Commissioners also issued a resolution in support of PACE. Without legislative action or a policy change at the FHFA, residential PACE programs are effectively not a viable option for communities. 


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