The Recovery Through Retrofit report (CEQ 2009)—a product of 

the White House Council on Environmental Quality, 11 federal departments and agencies, and six White House offices—

identified property-assessed clean energy (PACE) financing 

programs as a means of removing barriers to expansions in 

the residential energy efficiency and retrofit market.

Under PACE programs, municipalities and counties form 

special tax districts to help property owners finance energy 

retrofits by allowing a property owner to place an additional 

tax assessment on his or her property.1 Property owners who 

invest in energy efficiency (EE) measures and small renewable energy (RE) systems repay these assessments over 15 to 

20 years via additional annual payments on their property 

tax bills.

State and local governments that implement the PACE model 

can address two major roadblocks to clean energy growth at 

the residential level2: 

•	Lack of Capital: Property owners often balk at the up-front 

cost of EE/RE improvements. While a portion of the U.S. 

population is willing to make the investment, most consumers are cautious about any investment, especially in the 

current economic environment. To finance EE/RE improvements, property owners have had to self-finance (e.g., get 

home equity loans) or rely on small-scale state or local 

government rebates and other financial incentives.

•	Hesitancy to Make Long-Term EE/RE Investments:

Because many homeowners move every 5 to 7 years, they 

might hesitate to make a long-term investment in a renewable energy system or energy efficiency improvements. 

However, PACE assessments are transferable, which leaves 

open the possibility for property owners to recoup their 

investment upon sale.3

1

 Assessments are similar to loans in that they allow a property owner to pay

off debt in installations over a long period of time. However, PACE assessments 

are not legally considered as loans.

2

 As of this writing, businesses are only eligible under the Sonoma County 

program. However, Boulder County will be opening its program to commercial 

property owners under the next round of funding in 2010.

3

 A property buyer may require that all liens be settled before the property is 

transferred from the previous owner.

This fact sheet outlines the primary benefits of PACE financing and the basics of implementing these programs with a 

focus on how they can be designed and funded.

PACE Financing Benefits

PACE is designed to address the two roadblocks mentioned by:

1. Eliminating large up-front costs for energy retrofits

2. Reducing concern about investment recovery when the 

property is sold, because the financing is tied to the

property itself rather than to the owner

3. Converting an annual or semi-annual payment into a net 

monthly cost similar to that of other personal expenses 

(e.g., cable, cell phone service). Note that these are partially 

or wholly offset by electric bill savings.

4. Improving access to credit at a competitive, fixed interest 

rate; in addition, PACE assessment terms of 15 to 20 years 

exceed typical home equity loan terms. 

5. Reducing the likelihood of a negative impact on the 

municipality’s credit or obligation risk, and thus, not 

endangering other municipal programs.

6. Providing accessible EE and RE information and/or educational programs; moreover, the programs are sponsored 

by the municipality, which could engender more trust in 

the accuracy of the information as opposed to contractorled programs (Bailey 2009).

PACE Financing Basics 

The pivotal innovation of PACE is the creation of EE/RE 

assessments that are tied directly to the house and repaid 

via the property owner’s tax bill. The assessment, which is 

secured by a senior lien on the property, does not require an 

up-front payment.4 The lien provides strong debt collateral 

in the event the homeowner—or business owner—defaults 

on the assessment. Because the assessment and lien are tied 

directly to the property, they can be transferred upon sale. 

The basic flow of financing activity is shown in Figure 1.

4

 PACE programs often have application, reservation, and/or administration fees, 

some of which may need to be paid up front.

Fact Sheet Series on Financing Renewable Energy Projects

Energy Analysis

NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for 

Sustainable Energy, LLC.

Property-Assessed Clean Energy (PACE)

Financing of Renewables and Efficiency 
Figure 1. Basic PACE financing

Up-front money for total 

installation cost of EE/RE 

Additional

property tax

payments

Property Owner

• No/Low up-front costs

• Competitive-interest assessment

• Additional savings from tax-

 deductible interest

City or Local Government

• Creates tax assessment district

• Issues bonds or uses other

 funding sources

• Places liens on properties

Once the project is complete, the property owner repays the 

assessment, usually over 15 to 20 years. However, the property owner will simultaneously experience reduced electric 

utility bills resulting from the EE/RE improvements. As with 

mortgages, the interest is tax-deductible for homeowners, 

although the principal is not. 

A critical design element of the PACE model is the use of special tax districts known as clean energy assessment districts. 

These districts are regularly used in the financing of traditional local government projects (e.g., sewers and streetlights), 

and they provide two benefits for the localities. First, the 

special district shields the locality from risk, thereby ideally 

helping to protect its overall debt rating. Second, the special 

district allows the additional assessment to be placed only on 

property whose owners opt to participate in the program.

Federal Endorsement of PACE

Recovery Through Retrofit (CEQ 2009) identified three major 

market barriers to the widespread deployment of EE/RE 

technologies, one of which is access to affordable financing. 

The interagency working group responsible for the report

recommended providing program guidance to local government financing programs to address the financing barrier. 

The U.S. Department of Energy is also supporting PACE 

financing programs through technical assistance, webinars, 

and online resources for American Recovery and Reinvestment Act grantees that are pursuing long-term financing 

mechanisms for energy retrofits.5

The U.S. Department of Energy recently announced the 

release of $452 million in funds to 25 communities that 

received the grants as part of the competitive solicitation 

under the Energy Efficiency Block Grant Program. The funds 

can be used towards “innovative financing models to make 

these savings accessible, for example by offering low and

no-interest loans that are repaid through property tax and 

utility bills” (U.S. DOE 2010), and can therefore be used 

towards implementing PACE programs.

State and Local Support for PACE 

Designing a PACE program involves action at both the state 

and local levels. First, a state must establish laws enabling 

local governments to create special assessment districts that 

recognize EE and RE as public “goods.” See Figure 2 for 

existing state legislation and programs. Next, each locality 

can pass ordinances creating assessment zones and authorizing lien creation and project financing. Finally, the locality 

establishes administrative and funding processes.

Options for Funding PACE Programs

A locality can choose from a variety of means to finance the 

assessments6: Table 1 summarizes the benefits and challenges 

of PACE funding strategies for current and forthcoming 

programs in California, Colorado, Maryland, and New York. 

Each of these localities designed its funding program to take 

advantage of its unique situation:

•	Boulder County, Colorado, leveraged its high general 

obligation rating (AAA) to issue municipal bonds directly 

in public markets rated at A- (investment grade). 

•	Berkeley innovated by creating “micro-bonds.” The city 

contracted with an aggregator (Renewable Funding, LLC) to 

periodically issue a series of small bonds at pre-determined 

fixed interest rates. Renewable funding, in turn, received 

third-party financing based upon the bond portfolios. 

•	Sonoma County and Palm Desert used available general 

funds. 

5

 See http://www.eecbg.energy.gov/solutioncenter/financialproducts/PACE.html 

for webinars and information regarding technical assistance. Currently, there 

are 20 states with PACE-enabling legislation and five localities with active PACE 

programs, as shown in Figure 2.

6

 Although PACE programs have been deployed only at the municipal and county 

levels, state governments could develop similar programs, possibly improving the 

economics of the program (i.e., creating economies of scale, thereby reducing the 

administration cost per participant).

Figure 2. PACE legislation and programs in the 

United States
a

 DOE (2009) was the primary source for program characteristics in Table 1. The benefits and challenges were identified in part by analysts with NREL’s Strategic 

Energy Analysis Center with input from Fuller (2010) on the entire contents of the table and Weaver (2010) on the Annapolis program.

b Annapolis will launch Phase I of the EZ program in 2010, which is funded at $325k by grant money from the Maryland Clean Energy Center and will provide 50 assessments for homeowners. The interest rate for Phase I is unknown but is expected to be about 6% to cover administration costs. Phase II will be funded by bank loans.

c

 Note that $1.5 million was allocated for the pilot phase to finance 39 installations. However, only 13 assessments were completed, and thus the assessments did not 

exhaust the initial funding amount (Berkeley FIRST).

d Zimring, M.; Fuller, M. Existing and Emerging PACE Programs. Forthcoming Clean Energy Financing Policy Brief. Lawrence Berkeley National Laboratory.

e

 Sonoma County staff, personal communication with Bethany Speer, January 2010

Table 1. Benefits and Challenges of Various Funding Sources for PACE Programsa

Funding 

Source

Bond Funding Mechanisms Other Funding Mechanisms

Public Bond 

Offerings Micro Bonds Bank Loans General Funds

Municipal CO2

Waste Revolving 

Fund

Program 

example

Boulder County, CO Berkeley, CA

(only photovoltaic systems)

Annapolis, MD, Phase II

(program pending)b

Sonoma

County, CA

Town of Babylon, NY

(only EE)

Initial 

funding 

amount

Issued $9.75 M—

authorized $40 M

$1.5 M for the pilot phasec $1.5 Md $21.28 Md $3.19 Md

Interest

rate

5.2% (income-qualified); 

6.68% (open assessment 

category)

7.75% Unknown 7%e 3%

Benefits

n Local government’s 

balance sheet not used

n Temporary financing 

from bond aggregator 

not needed

n Can be tied to 

administrative role

n Aggregator serves as a 

good staging area for 

converting assessments 

to commercial bonds

n Does not affect balance 

sheet of local government

n Banks have 

experience 

securitizing loans/

assessments (e.g., 

mortgages)

n Access to large pools 

of capital

n Faster deployment, 

less complexity, and 

lower cost compared 

with issuing bonds

n Third-party 

financier not 

involved. 

n Funds easily 

accessible

n Quick startup

n Liens are placed on 

properties only if a 

borrower defaults 

on payments

Challenges

n Assessments are

issued before interest 

rates are known

n Lien placed on property 

before installation (i.e., 

risk that the installation 

is not done)

n May need borrowers 

to fund debt service 

reserve, which would 

increase up-front costs 

for program participants 

n Local government may 

need to offer moral 

obligation, which could 

hurt their credit rating 

if they are not able to 

meet the obligation

n May require boutique 

investor to purchase 

assessments in tranches 

(pools)

n A bank warehouse 

line of credit is only an 

option for the third party 

administration or if the 

state or local government 

puts up a moral 

obligation. Either way, 

there has to be a party 

willing to take the risk.

n Likely that only big banks 

might be willing to provide 

warehouse credit

n More complex to 

implement but easier to 

scale to demand

n High interest expense

n Requirements for 

guarantees and 

other covenants 

can complicate 

and delay program 

implementation

n Loan term is

typically limited to

10 years or less

n Locality at 

higher risk by 

self-funding

n Funds—where 

they exist—are 

inherently limited

n Potential to 

negatively affect 

credit rating

n Many local 

governments may 

not have sufficient 

general funds to 

launch a program

n Need to 

reconstitute waste 

fund as applying to 

carbon emissions 

or other pollutants 

than can be 

mitigated through 

EERE 

n May not be 

expandable

n May not be 

replicable
•	Babylon took advantage of an existing municipal waste 

funding program by classifying carbon dioxide as waste

to fund EE assessments. 

•	Annapolis, Maryland, is partnering with local banks for 

funding for Phase II (program forthcoming). 

PACE Design Considerations

Before adopting one of the program examples described here 

or designing its own program, a locality must first consider 

its financing situation and the program’s goals and objectives. 

Additional considerations include intended program size, 

municipal bond ratings, targeted interest rates, willingness to 

work with an aggregator, level of comfort with risk, and the 

amount of interest in partnering with third parties that will 

need access to tax records.

Another important design element is the timing of the 

construction, funding, and lien assignment. Boulder issued 

bonds, received financing, and assigned the assessments and 

liens simultaneously with the start of project construction. 

Berkeley, on the other hand, assigned the liens and assessments at the completion of project construction and certification. Babylon followed Berkeley by assigning the assessment 

at the completion of construction, but they chose to assign the 

liens only when (and if) a default should occur. Each methodology provides benefits and challenges in terms of funding 

and administration that should be considered in program 

creation. 

PACE programs can address major barriers to EE/RE deployment both by providing capital for the up-front investment 

and allowing for the investment to be transferred upon sale 

of the property. However, local governments must consider 

the benefits and challenges associated with alternative 

designs. Localities that consider beforehand all the programmatic elements mentioned—from program size to third-party 

partnering—will be better situated both to support EE/RE 

deployment to qualifying home and business owners and to 

avoid unwelcome political or financial repercussions.

References

Bailey, M; Broido Johnson, C. (June 2009). “The American Recovery 

and Reinvestment Act (ARRA) of 2009: Innovative Energy Efficiency 

Financing Approaches.” Ed. U.S. Department of Energy Office of 

Energy Efficiency and Renewable Energy. http://www.eecbg.energy.

gov/Downloads/EECBG_Innovative_EE_Financing_Approaches_

Webcast_060109.pdf. Accessed December 30, 2009.

Berkeley FIRST. (2009). Berkeley FIRST Web site.

http://www.ci.berkeley.ca.us/ContentDisplay.aspx?id=26580.

Accessed January 6, 2010.

Council on Environmental Quality (CEQ) Middle Class Task Force. 

(2009). Recovery Through Retrofit. October 2009. http://www.whitehouse.gov/assets/documents/Recovery_Through_Retrofit_Final_

Report.pdf. Accessed December 30, 2009.

Database for Renewables and Efficiency (DSIRE) (2009). PACE

Summary Maps. http://www.dsireusa.org/summarymaps/

index.cfm?ee=1&RE=1. Accessed January 6, 2010.

Fuller, M. (2010). Personal communication. Merrian Fuller, Lawrence 

Berkeley National Laboratory, January 2010.

U.S. Department of Energy (DOE). “Vice President Biden Kicks Off Five 

Days of Earth Day Activities with Announcement of Major New Energy 

Efficiency Effort,” Press release. 

U.S. Department of Energy (DOE). (July 30, 2009). Property Assessed 

Clean Energy (PACE) Best Practices. Department of Energy Discussion 

Draft.

Weaver, L. (January 2010). Personal communication. Lotte Weaver, 

Edison|Wright, January 2010.

Additional Resources

Berkeley Calculator (http://rael.berkeley.edu/berkeley/calculator/): 

Estimates of cost savings under Berkeley’s clean energy financing 

program

Boulder ClimateSmart Loan Program (http://www.bouldercounty.org/

bocc/cslp/cslpintro.html): Resources for homeowners and

policymakers who are looking to create PACE programs

Database of State Incentives for Renewables and Efficiency (DSIRE) 

(http://www.dsireusa.org/incentives/index.cfm?SearchType=

Property&EE=0&RE=1): State-specific financial information for

property tax assessed/PACE programs

Financing for Energy Efficiency and Renewable Energy

(http://www.eecbg.energy.gov/solutioncenter/financialproducts/PACE.

html): PACE resources from the EECBG program

Guide to Energy Efficiency & Renewable Energy Financing Districts

for Local Governments (http://rael.berkeley.edu/sites/default/files/

berkeleysolar/HowTo.pdf): Step-by-step guidance for local

governments that want to implement PACE programs

Policy Framework for PACE Financing Programs (http://www.

whitehouse.gov/assets/documents/PACE_Principles.pdf): The ObamaBiden administration’s course of action for PACE and requirements for 

receiving federal funding for PACE 

Contacts

This fact sheet was written by Bethany Speer of NREL and 

Ron Koenig. For more information, contact Bethany Speer at 

Bethany.Speer@nrel.gov or 303-384-7421.

National Renewable Energy Laboratory

1617 Cole Boulevard, Golden, Colorado 80401

303-275-3000 • www.nrel.gov

NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency 

and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

NREL/BR-6A2-47097 • July 2010

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