A billion dollars old, C-PACE spreads its wings

https://www.renewableenergyworld.com/2019/09/19/a-billion-dollars-old-c-pace-spreads-its-wings/

By
 Philippe Hartley  -
9.19.2019

Credit: Philippe HartleyThere were early days in solar when news of secured financing for a commercial project yielded an exuberant round of high-fives in the office, and maybe you’d quit early for a round of beers.  In 2008, PPA’s opened-up possibilities, and multiple variances on leases showed promise in what was still a slower-paced market with higher installation margins.
  
Today there’s a lot of work to do, and little time to do it. It’s a planetary thing. Financing needs to be on wheels. We know that a large part of the $10 trillion-worth of privately-owned commercial real estate in the US will require unprecedented financing for energy infrastructure upgrades, among other things.  Banks will not provide 20 or 30-year credit, in most cases, for capital improvements.  Credit-based lending is elusive for businesses that are leveraged. Anyone depending on solar PPA’s to sell PV plants knows the challenge of qualifying their customers for such financing, especially in small to medium projects.  There are certainly senior-debt methods of getting large projects done for sizable companies with robust credit-ratings; but most of America’s enterprises are not that.  

C-PACE Today
Fortunately, Commercial Property-Assessed Clean Financing (C-PACE) is growing, and its continued rapid rise in volume is virtually guaranteed nationally. This is because the funding mechanism creates hundreds of billions of dollars of critically needed, newly minted credit for property owners, and it does so in a way that is favorable to the balance sheet. In a past article, I had pegged a 2018 historic milestone of a billion dollars of funded projects.  I was some months off, but at some point this year, that milestone will have been breached with momentum. To illustrate, consider that over the last 4 years the growth of C-PACE in new construction financing has grown by about 100% each year.  This is great news for all, especially for manufacturers, contractors, engineers, financiers, building owners and developers. 

The new face of C-PACE is to your climate crisis future what Rosie the Riveter was to World War II: eager, resourceful, creative and high energy.   It is a haven of entrepreneurship, and we are only just beginning to feel its impact. 

Funder and program competition are taking hold.  Anyone wishing to leverage needs to upgrade their knowledge of this powerful mechanism.  

Programs and Funders Differ
Today’s C-PACE is as diverse as any other product, the acronym itself being a generic term like “mortgage.”  Behind it are many different name brands offering different products. None has a corner on the market because each funding product and PACE districts has features that may or may not be ideal for your customer or your project.  Some of the ways they differ are obvious, many are not, or downright arcane.  The chart included here looks at some of them.

A single difference between two funders in one of those areas can allow your project to move forward or stumble. This is why it is important to approach the C-PACE funder choice with discrimination.

In essence, as the capital market discovers the power of C-PACE as an instrument, the diversity of funds requires that one understand their difference, as well as their respective strengths and weaknesses.

It’s a rapidly changing scape. Specialty funds and programs are getting set-up.  Marketers are becoming more sophisticated at differentiating themselves, and money is beginning to specialize in market segments.  The seemingly most popular commercial solar cashflow modeling tool in the industry, Energy Toolbase, feels the trend; their Chief Operating Officer Adam Gerza told me “Over the last year or two, we’ve definitely had more requests for financing integrations on our platform from C-PACE providers than for, say, PPA or Lease providers.”
If you are an EPC or renewable energy installer, expanded options within the great new world of C-PACE mean greater ability to bring contracts to close; you can now address a wider range of scenarios and client circumstances, all within this evolving pocket of property-assessment credit.  Mastering the scape and scope of PACE funders, or lining yourself up with an agency that does, will provide a competitive factor in your origination strategy.   Telling Siri to call that same PACE funder each time you cross your fingers for financing assumes there is only one tool in the shed.
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Opportunistically, leveraging today’s C-PACE can expand your business as well.   Here are examples of how developers are taking advantage of this expanding financing solution:
Lowering customer acquisition cost through symbiotic trades
One of the many advantages of PACE is its applicability to hundreds of different upgrades. Once a building has been approved for a renewable energy upgrade, there is often a nice amount of credit that remains available for other energy, water or abatement upgrades.  It gives the contractor the opportunity to offer a financed solution for other improvements the building owner might have been considering, such as HVAC, double paned windows, or even a new face coat.  
Aron Hauser ran sales for solar companies for nine years before he decided to manage a new solar division for a Southern California roofing company now called Preman Roofing and Solar; his job was to expand their business into pv installations.  “I can tap into 20 years of goodwill with our customers who understand the importance of solid roof penetrations.  That’s a solid base from which to build a new business. Couple that with the fact that I can bring a single financing solution for both our energy generation and energy efficiency roofing sides, and now I have a winning proposition for the customer.  It has opened doors for our carport business as well.  We’ve become a packaged solution provider.”
Opening new territories across states
Developers and contractors with interstate ambitions can leverage the C-PACE financing mechanism by marketing themselves through national associations, businesses, or industries.  While C-PACE is not yet national (each state develops its own program), there are funders in each of the active states.  Generally speaking, C-PACE funders are motivated to associate themselves with at least one of the administrative districts in any state with an active program.  Cumulatively, that gives you access to more project funding than has ever been available before.

Source: PACEnationRalph Ciarlanti runs Green Realities Inc., an EPC that helps large hotel groups lower their operating costs by incorporating solar and storage into their infrastructure plans.  “My work requires finding financing solutions for locations across the west and beyond” Ralph says, “ C-PACE is emerging as a very interesting long-term funding source because it addresses multiple geographies via a single method that allows my clients to keep all their tax benefits.”                                                                                           
Ralph might not be able to, or choose to, fund all the projects of a chain through the same funder, given that each property’s location might impact his availability of funders.  But the client will appreciate the common attributes of C-PACE for their balance sheet across all of their eligible projects.
It’s a Commercial Financial Service
C-PACE now enters a new phase; let’s call it 2.0. There are billions of dollars waiting for your infrastructure or green building project via C-PACE today.   That adds up to a competitive business much like other commercial financial services, like insurance or mortgage.  Unlike in the early days of solar financing, C-PACE shifts the financing odds a bit more in favor of the property owner, if one knows how to leverage that resource.
It’s a new world for commercial project financing, and good news for the entire country.  If you’re watching the sea levels rise, you might say it’s not a minute too soon. 
Author

• Philippe HartleyPhilippe Hartley packages commercial financing on behalf of the leading C-PACE funders and tax equity providers in the US. He is the Managing Director of CleanFinancing. Reach him at [email protected].
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