Those four are San Antonio, Austin, Houston and El Paso. The CenTex cities of Austin and San Antonio were widely regarded as the most likely candidates as Austin already is the most progressive with its green building codes and much of the push to pass the state law came out of San Antonio.

Houston, the “Oil Capital of the World”, has a recently appointed Director of Sustainability, Laura Spanjian, and she told the Texas Tribune that her city was “not going to wait” for the PACE problems to get solved. “We have set aside funds to help commercial property owners with the upfront costs of energy efficiency improvements,” she said in an e-mail. “We’re going to find another model in the short-term while the issues with PACE are being worked out.”

Kudos to Ms. Spanjian on her aggressive approach.

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If you have missed some of the prior discussion on PACE on this blog, I recommend the following reading:

The Case for and the Concerns of PACE Financing

What is PACE Financing?

PACE 101 video

Initially, we just explained what it actually is back in February, (What is PACE financing?).

And there is this YouTube video which does some explaining in PACE 101.

We also touched on the new Florida law that was enacted just last month, and also touched on some of the obstacles around PACE spreading.

If you forgot or missed the earlier posts on what PACE financing is, it is simply a program that creates local bond financing districts, which then lend back capital to building and homeowners to fund energy retrofit projects. Owners repay the loan through their property tax bills, typically over a 15- to 20-year term.

Randyl Drummer also recently penned (can you still use that verb in this virtual world?) his own case for PACE financing. Drummer does a solid job touching on not only the promise but also the drawbacks of the plan.

Here are some of Drummer’s high points:

“The opportunities are really tremendous from an energy retrofit perspective,” Florida State House Majority Leader Adam Hasner said. “A lot of the hesitation from building owners comes from the upstream expenses and not wanting to make those expenditures. This type of financing can help alleviate some of those concerns and convince owners to make these types of investments, which are going to be cost effective as well as energy efficient in the long run.”

I love this quote from Hasner too: “It will take time to educate people. We’re still early in the first quarter of a four-quarter game. Everyone is very quick to recognize the innovations in technology in energy efficiency and new technologies. But PACE is really about an innovation in financing. It can be a very useful financial tool for commercial property owners to complete energy efficiency projects that will help them save money.”

Drummer cites a new Pike Research Report which says PACE will continue to grow in popularity in the U.S., with investment in PACE financing for commercial buildings totaling a projected $2.5 billion annually by 2015.

“Until now, private buildings such as these have had minimal access to financing for energy retrofits,” the Pike report said.

Some of the concerns are, according the Drummer’s article:

+ Potential buyers and lending institutions may be wary of existing PACE liens, including whether lenders may one day restrict the ability to tack significant energy projects onto the property tax bill (because they hold superior lien positions to the bank’s debt)

+ The lack of clarity in how GAAP treats (loan or as a lien) on a company’s balance sheet

+ Fannie Mae and Freddie Mac have expressed concern about how the agencies will be repaid if homeowners participating in PACE later default on their mortgages. (Boulder County, CO., canceled its PACE program for residential, although its commercial program is still active.)

In closing, despite the concerns noted about, Drummer quotes Clean Fund CEO John Kinney, “Frankly, taking an inefficient building and making it more efficient is much more valuable than taking a new building that is already highly efficient and simply certifying that it is in fact, highly efficient.”

Kudos, Mr. Kinney, you get it.

And there are just so many more existing buildings than new buildings, that our ability to impact the environment and our bottom line is staggering.

If you forgot what PACE financing is, check out our earlier blog post titled, “What is PACE financing?”.

A recent study from Johnson Controls estimates that today’s nascent U.S. commercial PACE market could represent around $18 billion each year.

As these guys aptly asked, how far will the PACE model spread and how deeply will it affect the business marketplace is today an open question.

In short, PACE financing allows local municipalities to create their own financing districts which would provide financing for the installation of renewable-energy systems and energy-efficiency improvements to buildings and homes. The loans are repaid through an increased property tax assessment over a period of years, up to 20. The loans will carry a fixed interest rate and stay with the house- so if you move, the next tenant continues to pay for the loan through property taxes.

Here’s a link to House Bill 1937 that allows PACE funding in Texas.

Below is a great video which explains it very well.

PACE 101