By NYEW 2017 Team and Guest Contributor, Hudson Kuras
The Mayor’s office is working to position New York City as a role model to engage in business with environmental goals not just the standard but the directive. New York City can be the breeding ground for innovative technologies that lead to a cleaner environment. Even with its high population density, extensive public transportation sector, and average smaller residence size, the city has concerns achieving mandated lower greenhouse gas emissions. “Buildings account for nearly three-quarters of New York City’s emissions,” according to the Mayor’s Office.
Energy conservation is the most efficient way to cut emissions. Many of the new buildings already follow the guidelines established by the Leadership in Energy and Environmental Design (LEED) for energy efficiency. Developing business models that support large-scale investments in energy efficiency is still a challenge, and not necessarily for lack of funding, but for disagreement on the best model to provide help for building owners to finance energy improvements.
NY State already offers several financial tools available for energy efficiency and innovative financing tools, including Property Assessed Clean Energy (PACE). PACE is a new public benefit which has been adopted in more than 30 states and allows for the repayment of the financing to be made on the property tax bill of the improved property. Local legislation needs to be passed to enable PACE. 40 municipalities across NYS representing over 50% of the population of NY State (ex-NYC) have enacted PACE legislation, and large cities throughout the country, such as Houston and Los Angeles have also begun offering PACE. NYC, however, still has not taken an official stance on this financing method.
The New York State Energy Research and Development Authority (NYSERDA) has tried to address some of the fears critics have about PACE. Consumers worry about the quality of contractors, who may not follow the best business practices and the desired quality management controls or have qualified staff. NYSERDA recently issued Commercial PACE Guidelines that include minimum credentials for contractors to address the technical and financial feasibility of commercial PACE projects.
New York Energy Week received the Executive Director of Energize NY, Mark F. Thielking, to present the PACE financing program to the first 2017 Steering Committee Kick-off Meetup, at the Urban Futures Lab in Brooklyn, NY.
Interview with Mark Thielking, Executive Director of Energize New York, which manages NY State’s commercial PACE program.
In addition to financing the property improvement, what other services does Energize NY provide in a PACE transaction?
The upgrade process to commercial properties is complex and owners often don’t know how to move forward. Energize NY assists by providing access to networks of certified contractors that work within these NYSERDA programs and perform low-cost audits and energy upgrade work, with knowledge of NYSERDA and utility offered incentives.
What level of scrutiny is there for PACE financing?
All improvement projects must be verified by going through an existing NYSERDA process or a utility program. For example, a solar PV upgrade would be facilitated by the NY-Sun initiative. The PV installer must be qualified by NY-Sun and submit the project plans to the program. This program would then determine the estimated energy cost reduction derived from lower utility bills. If the estimated energy savings create positive cash flow and the property met all other financial criteria, then the PACE financing would be approved.
This particular finance program helps property owners utilize New York State Energy Research and Development Authority (NYSERDA) energy efficiency and renewable energy programs.
PACE Programs allow local and state governments to fund the upfront cost of energy improvements on residential and commercial properties. In New York State, commercial property owners then repay these costs through an increased charge on the property tax bill over a set period of 5-20 years with an interest rate between 4.5 and 6.25%. This loan is also different because eligibility is not based on traditional credit metrics. It is based on the building’s ability to pay the extra tax charge with the savings coming from the energy improvement. Lastly, the repayment responsibilities remain with the property and automatically transfer to the new owner in the event of a sale.
In New York, the finance criteria for a commercial PACE financing are based much more on the property than on the property owner. They are as follows:
- Estimated annual energy savings from improvements must be greater than the annual finance payments
- Improvements have savings-to-investment ratio > 1
- Property’s existing loan-to-value is no greater than 80%
- Financing is no greater than 10% of property’s value
- No bankruptcy within last 7 years
- At least 3-year history of timely property tax payments
- Existing lender consent required
- NYSERDA/Utility energy assessments and verifications
Mark F. Thielking comes to NY Energy Week with more than 20 years of Finance and Energy experience. For the past six years as the Executive Director of the Energy Improvement Corp (EIC), he has overseen Energize NY, a commercial Property Assessed Clean Energy (PACE) finance program.