Loan program lifts cost barrier to green projects
For most businesses, one of the biggest hurdles of new solar photovoltaic projects or large-scale energy efficiency projects is the initial cost. However, businesses, nonprofits and multi-tenant housing owners have a new funding tool in Olmsted County.
PACE — Property Assessed Clean Energy — is a loan program run by the Saint Paul Port Authority. The program is designed to fund solar photovoltaic systems, energy-efficient HVAC systems, upgrades of lighting systems to LEDs, wind turbine installations and other efficiency projects.
"PACE definitely helps to make energy investments become positive cash flow to the building owner," said Peter Klein, vice president of finance for the SPPA.
Qualified projects can be funded up to 100 percent, Klein said, and the program works by setting up a special assessment on the property tax to repay the loan. The payments are collected along with property taxes, and the first payment is not due until May 15 the year following the funding of the project, giving time for the business or nonprofit to start generating positive cash flow from energy savings.
For example, a $1.5 million loan to install a heat recovery system at the Science Museum of Minnesota generated $17,000 per month in savings on a $13,000-per-month loan payment, leaving a net monthly positive cash flow of $4,000, he said.
So far, more than 30 projects have been funded through the program, Klein said, and more than 50 communities have either signed joint-powers agreements with SPPA or are in the process of developing an agreement.
One of strongest niches for PACE loans is in multi-tenant dwellings.
"It is difficult for a building owner to invest in energy-related projects when the tenants are the entities receiving the benefit of the savings," Klein said, noting that it is often tenants who pay the utility bills. "PACE allows the property owner to pass the assessment on to the tenants that are receiving the benefit, and it should be positive cash flow to the tenants."
Anthony Wittmer, communications coordinator for Olmsted County Environmental Resources, said the county is hoping this new funding source will help businesses make steps toward clean energy.
"Any time you're dealing with large capital investments, there's probably going to be a barrier," Wittmer said. "That's why PACE is in existence, to lessen the burden of that cost."
Qualified projects can receive up to 20 percent of the property's assessed value, and repayment terms can be spread out over a maximum of 20 years, though the SPPA likes to keep repayment period down to 10 years, Wittmer said.
Because the program is new to Olmsted County, there are no businesses, nonprofits or multi-tenant dwellings have taken advantage of the program here yet. Wittmer said he would like to see that change.
"We were at the (EarthFest) expo this weekend handing out information," he said. Interest seemed high.
Olmsted County Commissioner Sheila Kiscaden said PACE will spur investment while keeping dollars in the community.
"This program is a great way to encourage energy saving and renewable energy generation projects implemented in Olmsted County," she said. "While PACE provides opportunities countywide, it clearly advances Rochester Mayor (Ardell) Brede's goal of 100 percent renewable energy by 2031."