Picking Up the PACE: NYC LL96 Final Rules Expected Soon

Low-cost financing is on the way to help unlock the $20 billion retrofit market opportunity spurred under NYC’s building emissions law.

The city’s new PACE (Property Assessed Clean Energy) program, established by Local Law 96 of the Climate Mobilization Act, is close to launch. Final rules and guidelines are expected soon for a program that will help NYC building owners pay for the upfront costs of energy efficiency and renewable energy projects—driving down carbon emissions while saving owners money. Urban Green’s upcoming event, PACE Financing: A First for NYC, will let owners know what they can expect when PACE becomes available later this year.

PACE BASICS

PACE is a financing program authorized by states to offer lower-cost loans for sustainability projects, such as HVAC upgrades and rooftop solar. Commercial PACE (C-PACE) programs—the type allowed in New York State—typically provide loans for commercial, multifamily, industrial and nonprofit-owned properties.

With C-PACE loans, owners pay little or no upfront costs and have low interest rates and repayment terms as long as the useful life of the project—often up to 20 or 30 years. Annual payments are typically less than projected annual savings, making C-PACE a net positive for building owners. 

PACE loans come from private lenders but are repaid through a separately listed charge on the property’s tax bills. Like mortgages, PACE loans are secured by the property. But unlike mortgages, they don’t immediately become due when a borrower is in default. Instead, payments that are past due become liens against the property. PACE loans have senior lien priority to private loans, so PACE financing must be approved by existing lenders. Loan payments are the obligation of the building owner and transfer with a property. Given this structure, states and municipalities must legislate PACE, designate program rules, and approve lenders. 

A FIRST FOR NYC

New York City is joining 36 states (including New York) and the District of Columbia in a rapidly-growing C-PACE market that distributed over $670M in 2019. PACE’s potential in NYC is enormous, with billions of square feet eligible for financing and Local Law 97 driving upgrades in many buildings over the next decade. If owners and lenders embrace PACE financing, it could fund thousands of retrofits, help properties meet the new emissions caps before compliance deadlines and generate immediate savings for owners (see, for example, a $2.6M C-PACE deep retrofit of a 112,000-square-foot office building in Connecticut).

The New York City Energy Efficiency Corporation (NYCEEC) will administer the city’s C-PACE program along with the NYC Department of Finance, with PACE financing expected to become available this year. Draft rules were released for NYC’s program in November 2020. Those rules generally align with NYSERDA’s PACE guidelines and are expected to be finalized in the coming weeks.

The draft NYC rules and state guidelines mirror many existing PACE programs, although the New York State program does not cover standalone resiliency improvements such as flood-proofing unless the improvements also relate to energy use and are justified through an energy audit. New York State recently allowed PACE programs to include new construction, and while NYC doesn’t have that option now, a proposed amendment to the city’s law could change that.

ELIGIBLE PROJECTS

PACE will be available in NYC for two categories of projects:

  1. Energy Efficiency Improvements must reduce energy consumption and include window and door replacements, lighting, caulking, weatherstripping, air sealing, insulation, and heating and cooling system upgrades. Projects must be permanently affixed to the property, so items such as light bulbs and plug-in appliances are not eligible. An energy audit is required for loan approval, and energy efficiency improvements must demonstrate cost-effectiveness or be on the list of pre-qualified measures listed in NYSERDA’s Commercial PACE Guidance Document
  2. Renewable Energy System Installations include systems using solar, wind, geothermal, anaerobic digestion gas and fuel cell technologies, as well as NYSERDA-approved air source heat pumps and energy storage systems.

All approved projects must pass a renewable energy system feasibility study, which will generally align with NYSERDA’s PACE guidelines for eligible renewable energy system technologies.

NYCEEC will be releasing Program Guidelines that set specifics around energy audits, criteria for cost-effective projects, and details around renewable energy system feasibility studies in NYC’s PACE program.

WHAT’S NEXT? 

PACE can provide NYC building owners with a powerful new tool for cost-effective energy efficiency upgrades, but some challenges lie ahead. For example, ensuring that existing lenders allow PACE liens will be essential to the program’s success. In other states, uptake in multifamily properties has been particularly slow. And educating and encouraging owners to promptly utilize PACE in the nearly two billion square feet of multifamily buildings covered by Local Law 97 may be crucial to achieving the city’s emissions goals. 

Urban Green’s March 18th event, PACE Financing: A First for NYC, will explore project eligibility, the PACE energy audit and other aspects of how the guidelines will be implemented. Join us to hear from experts at NYCEEC, the Mayor’s Office of Sustainability and PACE capital providers at Counterpointe Sustainable Real Estate, and get answers to all your questions about PACE!