On August 5th 17 California counties, representing more than 1/3 of the state’s population of 38 million residents, announced the launch of PACE programs through the CaliforniaFirst program. This program will make up to US$200,000 available to per home at competitive rates to finance solar PV and solar thermal systems, as well as energy efficiency improvements.
Initially backed by $300 million in private financing, this will be the largest PACE program in the nation. Like other PACE programs, the loans provided by CaliforniaFirst will be repaid through property taxes over five to 20-year terms, and homeowners will qualify based not on individual credit ratings, but on the value of their homes.
PACE was pioneered in Berkeley, California in 2008 with the Berkeley FIRST program. The program was lauded as an important mechanism to enable homeowners to make costly energy efficiency improvements and grapple with the costs of installing solar, and similar programs were adopted in jurisdictions nationwide.
This expansion largely stopped in the residential sector in the spring of 2010, when the Federal Housing Finance Agency (FHFA) expressed concerns that in the event of default PACE loans would be repaid before mortgages. FHFA then warned local governments that it would change underwriting standards for home mortgages in communities that adopted PACE.
Not all local governments were daunted by this threat, and in Riverside County, California the a local government authority launched the HERO program in late 2011. Additionally, commercial PACE programs lived on, as commercial properties are not under the jurisdiction of FHFA.
HERO and other programs have shown that the threat of defaults in homes that participate in PACE programs has not played out. They are as rare as a unicorn, says Cliff Staton, VP of program administrator Renewable Funding. He says that with around 10,000 PACE projects completed in the state of California, there have been zero reported defaults.
Even so, in order to encourage local governments the state of California has set up a reserve fund to cover the loans in the event of defaults. California Governor Jerry Brown signed SB 96 in September 2013, which sets aside $10 million to cover potential defaults. This has enabled CaliforniaFirst to move forward.
Staton of Renewable Finance expects the program to grow rapidly. He predicts that CaliforniaFirst will enable the installation of $250 million worth of solar PV systems in 2015, and also that the program’s initial $300 million credit facility will rapidly be renewed by private investors.
There are a number of investors who are quite interested in funding the program, says Staton. As long as this is successful I don’t think there will be a limit on the amount of capital deployed in this program.
The 17 counties participating in CaliforniaFirst include San Mateo and Santa Clara, which comprise Silicon Valley, Alameda County in the East Bay, and Ventura County in Southern California.