On April 24, 2019, the Reno City Council unanimously passed a Resolution to establish a Commercial Property Assessed Clean Energy (C-PACE) Program in Reno. During the 79th Session of the Nevada Legislature, the Legislature approved, and former Governor Sandoval signed, Assembly Bill 5 enabling Nevada municipalities to create districts to finance energy efficiency and renewable energy projects for commercial, industrial and multifamily (more than four units) properties. The law allows local governments to establish a C-PACE program and district in their jurisdiction.
The C-PACE model is an innovative mechanism for financing energy efficiency and renewable energy improvements on commercially owned properties. C-PACE allows property owners to finance 100% of the hard and soft costs of clean energy improvements, and pay the costs back over time through a voluntary assessment. Since C-PACE financing is attached to the property rather than an individual, it is transferrable to a new owner upon sale, and an especially attractive solution for properties that lack access to traditional forms of debt.
More than 30 states have adopted C-PACE enabling legislation, and over $883 million has been invested in energy efficiency, renewable energy, water conservation, and resiliency projects through C-PACE financing (PACENation.org). A majority of that investment has been in the hospitality sector; a key sector in the City of Reno (see graphic).
In Nevada, an existing property lien holder has the opportunity to provide the capital for the C-PACE project. This means an owner can take advantage of this innovative financing mechanism while maintaining a business relationship with their bank. C-PACE is attractive to local governments because it creates opportunities for private investment in local businesses, decreases energy use and costs for local businesses, and creates jobs for the local workforce. Qualifying real property includes commercial or industrial property, including multifamily residential properties that contain more than four individual dwelling units.
Background in Reno
The city committed to explore and implement innovative financing options for commercial, industrial and multifamily buildings to catalyze investment in energy efficiency and renewable energy projects as an element of its City Energy Project grant proposal. The City Energy Project grant award provided funding to the City of Reno to hire a full-time staff member to advance this initiative, as well as other initiatives outlined in the proposal. The City also launched the ReEnergize Reno campaign to encourage investment in energy and water efficiency. ReEnergize Reno is a locally-branded Better Buildings Challenge, a program of the U.S. Department of Energy challenging building owners and facilities managers to reduce energy and water use 20% over ten years.
Following passage of Assembly Bill 5, the City of Las Vegas was the first city in Nevada to explore a C-PACE financing program. The City of Las Vegas invited the City of Reno to serve in an advisory capacity and participate on its selection panel that reviewed proposals and interviewed applicants for a qualified Program Administrator for Las Vegas’ C-PACE financing program.
In 2018, the City of Reno was invited to be part of the U.S. Department of Energy Commercial PACE Working Group. This is a group of state and local governments working together to learn about, refine, and launch successful C-PACE financing programs. The Working Group’s primary goals are to develop tools and solutions to barriers facing state and local government, convene and create peer exchanges to enhance public-private partnerships, and provide information from leading technical experts. The overall goal is to stimulate $60 million in energy efficiency and clean energy projects through C-PACE investments by 2022 in communities across the U.S.
The City of Reno is one of only 10 local governments selected to participate. To streamline C-PACE programs statewide, the City of Reno encouraged the City of Las Vegas and the Nevada Governor’s Office of Energy to participate as well. This partnership represents one of only three city-state partnerships represented in the group.
How Does it Work?
C-PACE is a public-private-partnership enabled by state law and county/municipal ordinance. The program is designed to help commercial building owners invest in their property to gain immediate cost savings. With C-PACE, private lenders provide 100% financing for projects that meet the requirements of state and local PACE administrators. Once constructed, PACE projects may reduce utility bills and PACE can always be combined with incentives, grants and subsidies. Building owners can use the savings from the energy project to repay the financing, which is placed as a special assessment charge on their regular property tax bill. Repayment terms can extend out to 20 years or more.
Some of the benefits may include:
- Preserves owner flexibility
- Secure funding for owners (fixed rate, non-recourse)
- Not required to be repaid upon sale of the subject property (unless required as part of the transaction)
- Can be passed through to tenants under most lease structures
- Accessible to those with non-investment grade credit
- Requires $0 out of pocket and allows long (20+ year) payback periods
- Projects can be cash flow positive from day one and increasing over time
“During the project planning phase, I learned about C-PACE and it seemed like a great fit for what we were trying to achieve through our deep energy retrofit. We expect the enhanced energy performance will transform the building for decades to come, making it a more comfortable, healthier, and productive place to do business.” Timon Malloy, Building Owner.
Developers are also becoming increasingly aware of the benefits of C-PACE financing when evaluating their access to capital. In Reno, there are significant developments on the forefront of this financing mechanism. To use C-PACE financing, the funds must be earmarked for specific qualifying measures such as HVAC, windows, roof, lighting, controls, and solar. The financing also works well with tax credit structures such as HTC and NMTC projects. The graphic below, credit to Greenworks Lending, describes a traditional capital stack vs. a capital stack using C-PACE funds.
The City of Reno staff will present to City Council a contract for third-party administration of its program on May 22, 2019. Following approval, an educational workshop will be planned for later in the year. Follow Reno’s Sustainability department on Twitter @RenoResilience for the most up-to-date information.
Co-Authored by Jamie McCorry, Director of Marketing and Elyssa Rothe, Director of Policy & Program Development at Greenworks Lending and Suzanne Linfante, City of Reno Energy Advisor.