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3. Choose Capital Sourcing Approach(es)

The ability to fund PACE programs can be the biggest hurdle for many local agencies. Some local governments with reserves or investment portfolios may choose to use them as a source of capital, thus using their PACE program as one of their investment portfolio strategies. Otherwise, despite the current lack of availability of large-scale private capital, there are a number of financing models that can provide an investment with low risk and a low-enough interest rate that will result in long-term savings (i.e., total costs less than total savings) for program participants.

Generally, local governments can choose from three approaches for commercial PACE programs: warehoused, pooled bond, and owner arranged, as described in the following sections.

3.1 Warehoused

In the warehoused approach, a large line of credit (in the millions of dollars) is secured to fund energy efficiency and renewable energy projects. (Similarly, local or state governments can choose to fund projects from their reserves or investment portfolios.) When a commercial property owner submits an application and the PACE program approves it, a reservation is placed for the project amount against the total line of credit, thus reducing the total remaining line of credit available. The project is then allowed to proceed to implementation right away. When the project requests payment for work completed, it is paid from the reservation previously made.

When the PACE program has issued enough total project funding from the line of credit to reach a certain threshold (determined by the program planners and their financial partners), the line of credit is then replenished—for example, by issuing a bond against the group of funded projects and using the proceeds to pay down the credit line (the threshold being a certain dollar amount that makes the transaction costs of issuing a bond a reasonable charge against the proceeds). The warehoused approach is the fastest way to fund projects because the funding from the line of credit is essentially available on demand without additional delay. See Figure 1 for a diagram of the process flow.


Chapter 13


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