PACE in Charlotte?
by Hans O'hanian
February 10, 2011, page 2.....

Some Vermont townships are eager to launch PACE, the Property Assessed Clean Energy program that supposedly supplies homeowners with low-interest loans to pay for energy-efficiency retrofits or renewable installations for their homes. These loans are to be offered by the townships, which will issue special bonds and transfer the proceeds to homeowners, who then repay the principal and interest (and a service charge) in the form of extra assessments added to their property tax bills over a 20-year span. Besides the low interest rate, the advantage for the homeowner is supposed to be that he or she can shift some of the cost of the installation to a later buyer of the home, who would have to pay the extra assessments remaining until year 20.
This seems like a good deal—but before you saddle this gift horse, look into its mouth. Are the interest rates for PACE loans really low? In the existing PACE programs in California and Colorado, the interest rates are 7% to 7.75%. That is not a good deal. Right now, my local bank offers a 20-year home equity loan at a fixed rate of 6.82% or at a variable rate of 2.99%.
And the scheme of foisting assessments onto the next homeowner depends on finding a dimwit buyer. If the buyer has some horse sense and doesn’t want to pay for energy improvements, he’ll simply demand a reduction of the sale price to compensate for the extra assessments. Ultimately, how much the seller gets for installed energy improvements depends on how much the buyer is willing to pay, either in the form of extra assessments or—if the seller is not a PACE participant—in the form of an increase of sale price. The notion that PACE compels the buyer to do favors to the seller is a delusion.
So why are some Vermont townships eager for PACE? In part, as my banker said, it’s because they haven’t done their homework and don’t know about interest rates. In part, it’s the sweet smell of grant money and the offer of free financial, technical and legal services from Vermont Energy Investment Corporation (VEIC). Bernie Sanders has arranged for a special $110,000 QUICKSTART grant for VEIC, to promote PACE and cover initial consulting costs (what happens when this grant runs out?). But most of the enthusiasm for PACE is just a fad and a mindless attempt to imitate California. The California PACE program is primarily intended to promote solar electric installations. California has a higher per-capita electric energy use than Vermont, a dirtier supply, a higher summertime demand for air conditioning, and a lot more sunlight, all of which favor solar electric installations. In California residential solar electric panels operate at a (small) profit, even without incentives. In Vermont they operate at a loss, even when available incentives are included. The gods of the California valleys are not the gods of the Vermont hills.
Guidelines published by the Department of Energy last year recommend that PACE financing be restricted to installations that produce a positive net cash flow (more precisely, a positive Net Present Value). The table summarizes the results of my detailed 25-year, cash-flow calculations for several typical installations in Charlotte: small wind, solar electric tracker, solar hot water, ground-source heat pump, and energy-efficiency retrofit. These calculations include current costs and performance data for Charlotte conditions, incentives and tax credits, interest rate, projected future inflation and energy costs, maintenance costs and degradation, and also income taxes (more details available on request).

The numbers reveal that neither wind nor solar trackers are cost effective in Charlotte. Solar hot water is marginally cost effective. In contrast, ground-source heat pumps and energy efficiency are real winners—they generate a substantial cash flow for the owner, on average about $1,000 per year, increasing to about $4,000 or $5,000 per year when the assessments expire at year 20. Unfortunately, in its wisdom (or lack thereof), our state government offers no incentives at all for ground-source heat pumps and only a petty incentive for energy efficiency. I was told that incentives were allocated to achieve “market share.” Does this mean that the folks in Montpelier are more concerned with the good of the green-energy industry than the good of the public and the environment?

Hans Ohanian