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«NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency & Renewable Energy, operated by the Alliance for ...»

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The CSLP is one of several programs under a countywide Sustainable Energy Plan, which has key goals in (1) reducing greenhouse gas emissions, (2) improving the environment, (3) saving energy, and (4) providing direct and indirect economic benefits. This study focuses on economic benefits, specifically those from Phase 1 of the residential CSLP. It looks at 598 energy home improvement loans that together comprise just over $9 million in energy efficiency and renewable energy spending through program loans 1 and asks questions such as: How much money was spent in the county and in the state in order to meet home retrofit needs for materials and labor? What was the total related energy bill savings? How did direct and indirect investment in energy efficiency and renewable energy measures generate jobs? What kinds of jobs and where? How might the respending of energy bill savings and related business income result in additional economic benefits and jobs of all kinds?

Though it is specific to the Boulder County experience, this study also sheds light on how the PACE financing model creates economic benefits and how these benefits could be increased. It highlights the drivers of green jobs development locally, statewide, and nationally. It also spotlights common challenges, from the need for longer test periods that would allow administrators to work out program kinks, to the need for innovative ways to promote local contractors when PACE communities are part of large, interdependent metro areas.

The economic analysis for this report drew upon available participant invoice data, which was available for just over $9 million in CSLP lending. This analysis does not include spending on loan fees or required reserves. A small number of customers delayed spending their approved loan dollars, and their spending was not included in this analysis.

Although this study is not a process evaluation, some aspects of program implementation that bear on the economic impacts of the CSLP program are discussed. In this way, the study presents this ClimateSmart program as a useful model for future community-based, energy-related financing programs.

1.1 PACE Financing 2007-2010 Property-Assessed Clean Energy (PACE) financing, or the creation of energy financing districts, is a tool that local governments may use to give residents and business owners access to financing on terms that are well-suited to energy efficiency and renewable energy building improvements. Local governments—including cities, counties, and other entities with taxing authority—may issue bonds that generally have no recourse and provide financing with little or no money down, to be repaid through a 15- to 20-year assessment on each participant’s property taxes. If a property owner sells a PACE-assessed home or business, the assessment stays with the property, with responsibility passing to the next owner until the debt is paid.

Thus, PACE addresses three major barriers to energy efficiency and renewable energy (solar PV)


1. Lack of capital. PACE financing programs usually require low fees and no money down for qualified participants.

2. Lack of long-term commitment. Because homeowners in the United States tend to move every seven years or less, they like the fact that PACE assessments are transferable to new property owners.

3. Lack of quality assurance. PACE programs typically address this barrier by offering energy audits or workshops to educate consumers, and they typically place some requirements for quality assurance on participating contractors.

The idea of land-secured financing districts is not new. Such districts support a myriad of local improvements. As with PACE districts, some of these assess costs only upon the beneficiaries.

For example, assessments may finance individual hook-ups to city water, to replace individual wells. Property-assessed financing is not legally a loan, though many PACE programs (including Boulder County’s) use the term “loan” because it is widely recognized shorthand for debt financing.

The first PACE program in the United States was proposed by the City of Berkeley, California, in 2007 and pilot-tested in 2008 as a way to finance residential solar projects. The concept caught on quickly. By mid-year 2010, 22 states and the District of Columbia had legislation in place to enable PACE programs. About a dozen local programs had started, from Annapolis, Maryland, to Milwaukee, Wisconsin, and Yucaipa, California. The U.S. Department of Energy (DOE) began providing technical assistance and outreach to a number of grant recipients of American Recovery and Reinvestment Act (ARRA) funding.

While the PACE lien legally transfers to the next homeowner, it may be subject to negotiation at the time of sale.

However, federal housing regulators, including the Federal Housing Finance Agency (FHFA) and the Office of the Comptroller of the Currency, expressed safety and soundness concerns with the PACE concept. In July 2010, FHFA released a statement directing the federally backed lenders Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to undertake actions to address safety and soundness concerns in PACE jurisdictions (i.e., adjust underwriting criteria for borrowers in PACE jurisdictions). The FHFA’s primary complaint was that most PACE programs gave the energy-related property assessments primary lien status, meaning that the tax assessment would be repaid before the mortgage in the case of a foreclosure. The agency also expressed concern about the stringency of underwriting standards and consumer protections in residential PACE financing programs.

Figure 1. Basic PACE financing process. Source: NREL 2010

The result of the FHFA decision was an indefinite moratorium on nearly all residential PACE programs nationwide. A few residential PACE programs have continued to offer financing, as have certain commercial PACE programs, such as one in Boulder County. As of fall 2010, initiatives that prescribe secondary liens on PACE projects, such as one in Maine, were also in effect. The option for secondary liens has not caught on, as there is no secondary market for bonds tied to this type of investment.

A federal legislative remedy stalled in Congress in fall 2010. Several PACE program sponsors and advocacy groups have brought lawsuits, which are currently pending against FHFA. Some local energy program sponsors have announced plans to keep working on solutions, reviving PACE or working with alternative local financing strategies. 3

PACE Financing Sources:

B. Speer and R. Koenig, Property-Assessed Clean Energy (PACE) Financing of Renewables and Efficiency, NREL Energy Analysis Fact Sheet Series on Financing Renewable Energy Projects, National Renewable Energy Laboratory, July 2010. (www.nrel.gov).

M. Zimring, I. Hoffman, and M. Fuller, Pace Status Update, Clean Energy Financing Policy Brief, Lawrence Berkeley National Laboratory Environmental Energy Technologies Division, August 2010. (www.eetd.lbl.gov).

J. Farrell, New Rules Project, PACE Presentation: Overview, Update, and Future, for the Southwest Renewable Energy Conference, Santa Fe, New Mexico, September 2010. (www.newrules.org).

1.2 Assessing PACE Economic Benefits The Boulder County ClimateSmart program made national news when voters passed the program’s first bond measure. The implementation of the residential program in Spring through Fall 2009 also won national recognition for its speed to market and widespread reach, encompassing 40 residential measures and attracting participation from 300 contractors. When CSLP launched, Boulder County unemployment was rising. According to county economic development staff, the ratio of applicants to job openingswhich for years never averaged more than 10 to 1surged past 20 to 1 in early 2009. Local policymakers hoped the CSLP could address many goals, including job creation.

This economic analysis will be limited by a number of factors. First, this is by definition a study of early results from a first-time effort. The market for a first-time program typically includes many early adopters, and their behavior differs from that of all homeowners. In addition, the energy bill savings used in this analysis, which were based on usage during the first year after the improvements were made, are likely to differ from average savings over future years. This is because it takes some time for customers to perceive and respond (i.e., adjust habits) to changes such as increased comfort, lower bills, etc. Also by definition, this study is focused on the homeowners who followed through the entire program process and used program financing for specific home improvements. Yet the program spurred other improvements that ultimately used alternative financing or cash. Those program-inspired investments had economic impacts that were not specifically documented. This analysis does not quantify every economic impact, but it provides a framework for understanding the range of impacts and how they might occur.

Figure 2. The recirculation of dollars spent on energy efficiency or renewable energy measures is known as the multiplier effect.

In short, jobs and growth in economic activity are related to spending and the circulation of money in the economy. The full impacts on jobs, earnings, and economic activity of investments in CSLP energy measures and the resulting energy bill savings are captured by evaluating the impacts for each change in spending. Note that dollars spent on energy efficiency-related home improvements create much greater economic benefits and more local jobs than do dollars spent to pay utility bills and build power plants. Figure 2 summarizes the way these dollars circulate from local energy program spending and the resulting benefits. Additional background on economic modeling and specific inputs from the Boulder County CSLP will be discussed in Section 2 of this report, Economic Analysis.

1.3 Program Attributes that Affected Outcomes Only a handful of PACE programs completed funding rounds by mid-2010, and each of these programs had different goals, target markets, and program implementation plans. The differences and similarities among these programs are discussed in the appendix of this report and summarized in Table A1. Readers of this report should bear in mind that each local PACE program or related financing program yields unique economic results, as well as more universally applicable lessons.

Boulder County’s program, conceived in 2008, was unique in its emphasis on climate protection.

Economic development was only one of four goals:

Reduced greenhouse gas emissions • Reduced environmental impacts, such as air pollution and water use • Energy savings, with accompanying bill savings in all sectors • Economic benefits, including green jobs creation.

• In Boulder, program planners wanted to encourage a broader range of measures, in part, to improve the average cost per unit of greenhouse gas reduction. The list of qualifying improvements included air sealing and ventilation; insulation, space heating and cooling; water heating; lighting and daylighting; energy efficient windows and doors; reflective roofs; pool equipment; landscaping (e.g., strategically planted trees), and installation of solar PV, solar water heating, small wind turbines, wood/pellet stoves, and much more. Program planners particularly wanted to balance interest in solar PV against low-cost/high-savings measures such as air sealing.

Boulder’s emphasis on public education affected the program outcome, as residents were presented with several options for achieving energy savingsbesides using PACE financing.

CSLP applicants were required to attend an introductory workshop. There, they learned about technologies, program procedures, and the availability of technical support. For example, Boulder County offered a subsidized energy audit, as well as free phone counseling to help customers prioritize investments.

The CSLP addressed the goal of local jobs development, primarily by creating a market for energy efficiency and renewable energy measures that could spur local businesses of many types.

Program administrators worked closely with contractors who volunteered their time to help promote the program and support educational workshops. The program paid workshop trainers, but there was mutual benefit for all contractors who pitched in. Press coverage for the program was strong in local newspapers, including photos and interviews with Boulder-area contractors.

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