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California Rolls Out Building Efficiency Loans

Building roof-top solar panels
A new financing mechanism will help commercial building owners in many parts of California upgrade the energy efficiency of their properties with such systems as rooftop solar panels, wind turbines, and improved utility services. © Darren Kemper/Corbis/AP Images

CaliforniaFIRST is the largest property-assessed clean energy finance program in the nation, offering an attractive option for investing in energy efficiency upgrades to structures.

November 6, 2012—Commercial and multifamily property owners in 14 counties and 126 cities in California have a new option for financing improvements that increase energy and water efficiency through the CaliforniaFIRST Program, unveiled recently by the California Statewide Communities Development Authority (CSCDA).

CaliforniaFIRST is a property-assessed clean energy (PACE) finance program that enables property owners to borrow money for approved efficiency upgrades and certain renewable energy installations. That loan is then repaid along with property taxes via a lien placed on the property.

The program is the largest PACE in the United States based on geographic area and population. Because of regulatory issues involving the Federal Housing Finance Administration, individual homeowners cannot participate in the loans at this time.

Property owners have their choice of lenders through the program, which will issue loans for $50,000 or more based on the value of the property, the current debt, and the cost of the proposed improvements. The PACE lien must be approved by the property’s mortgage lender because it becomes a senior debt.

Loans secured through the program offer several distinct advantages when compared to traditional financing options, says Cliff Staton, the executive vice president of Renewable Funding, a finance and technology solutions firm in Oakland, California. Renewable Funding administers CaliforniaFIRST for CSCDA.

“It’s basically an off balance sheet financing tool, and it does not require traditional credit-based underwriting,” Staton says. “The underwriting is based on the payment history of property taxes and mortgage. Also, because these are property tax assessments, the payments can pass through in most cases directly to the tenants.

“It actually aligns the interests of tenants and property owners. These improvements can lead to dramatic reduction in the utility bills. That helps tenants, and also allows property owners to increase the value of their property,” Staton says.

The program offers longer payback terms of as much as 20 years, enabling property owners to consider more extensive efficiency enhancement projects in which the payback extends beyond the typical window of 18 months. Interest rates will vary by lender but are currently in the 6 to 8 percent range.

Property owners will be required to conduct an American Society of Heating, Refrigerating and Air Conditioning Engineers (ASHRAE) Level 2 energy audit to determine what projects will provide the greatest return on investment.

“What the audit says [is], based on your energy use, here are the things we would recommend. They might include a new HVAC (heating, ventilation, and air conditioning) system, or a lighting upgrade, or film that goes on the outside of windows that reduces the energy use by X percent,” Staton says. “For each of these measures they will tell you how much energy you would save as a result of this and how much it would cost.“

Because the loans become property liens, they can be passed to a new owner with the sale of a property. This provides owners who might be considering the sale of a property further incentive to undertake efficiency upgrades. The efficiency enhancements will increase the value of a property, but an owner who sells soon after the investment won’t be required to repay the full cost from the proceeds of the sale, as in traditional financing options.

Staton says several lending institutions have already expressed interest in issuing loans through the program and more than 20 applications from property owners have been submitted in the first month of the program.

The program includes a broad array of energy efficiency measures. Property owners can obtain loans to increase insulation, improve the ventilation and air sealing, install high-efficiency boilers and water heaters, install tankless water heaters, upgrade to high-efficiency lighting, replace windows, and install high-albedo roofs. Heating and cooling improvements include the installation of cogeneration furnaces, evaporative coolers, geothermal heat pumps, solar space heating, new thermostats, and high-efficiency furnace and air-conditioner projects.

Loans are available for solar thermal installations, solar photovoltaic systems, wind turbines, and fuel cell power systems.
Approved water-efficiency improvements include low flow showerheads, toilets, urinals, and aerators, and the installation of grey water systems. Storm-water collection systems and irrigation improvements will be handled on a case by case basis.



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