UPDATED: MARCH 28, 2016 3:05 PM — The City of Orlando will soon join more than 65 cities in Florida that are giving building owners access to the most attractive form of financing today for energy efficiency upgrades, which spreads repayment over enough years for an owner/operator to profit off the investment in Year One.
Orlando's City Council unanimously approved a resolution and three inter-local agreements on Monday to allow homeowners and building owners to voluntarily utilize Property Assessed Clean Energy (PACE) financing for such upgrades and renovation.
The move will provide hundreds of millions of dollars in new capital access to Orlando for property owners to invest in hurricane protection, on-site renewable power installation and energy efficiency.
Buildings account for 57 percent of total energy use in Orlando, and 72 percent of the city's air pollution. Electricity bills will only increase for residents as demand grows, with OUC expected to build at least one new power plant in the next decade, passing on that cost to consumers.
Owners of commercial and apartment buildings say financing options have been the main barrier to investing in renewables like solar panels, and renovations for energy and water efficiency.
Interest rates and payback schedules that owners see from private lenders usually don't offer a positive net return in the short term. Doubts surface about blowback if they later sell the property, and how measurable the efficiency gains will really be.
Orlando will quell all those doubts, city staff say, with this new financing option just the first step in a thorough Building Energy & Water Efficiency Strategy (BEWES) to be introduced over the next few months.
PACE FINANCING - A FIRST STEP
PACE has emerged across the U.S. in recent years as the leading method of voluntary local finance programs for wind protection, energy efficiency and renewable energy improvements.
Through PACE programs, a property owner can get 100 percent of the funding needed for approved projects or renovation work. They'll pay a fixed interest rate (around 5-7 percent), and the debt is rolled into their local property tax payment as a non ad valorem assessment, paid off over 20 years or more.
In December, the largest known PACE financing deal at $8.4 million was announced for State House Square, a Class-A office building in Hartford, Connecticut, to be paid off over 25 years. Nationally, more than $2 billion has been invested in more than 700 commercial and residential buildings via PACE programs, according to PACENation.
Unlike home equity loans, PACE obligations are attached to the property, so they'll be passed along to the next owner when a home or building is sold.
"If you stretch out the investment long enough you can make sure the savings from it are greater than your annual payment, therefore the savings help you make that payment and unlock new cash flow," said Chris Castro, senior energy advisor and sustainability program manager for Orlando.
"Now your Savings-to-Investment Ratio can be greater than one. That's the goal of PACE, to save more every year than you pay, then everyone is in the green," he continued. "The beauty is you can amortize it and stretch it out much longer than a home equity loan, which is typically 5-10 years."
There is no financial or legal risk to the city if this resolution and inter-local agreements are approved. Orlando will simply be opting in to a Florida state statute (163.08) established in 2010, which allows local governments to enable this financing.
If passed by City Council, the three competing PACE providers will spend the next few months integrating with Orange County's property appraiser and tax collector. By Fall 2016, the PACE financing option could be active for Orlando homeowners and building owners to pursue.
Introducing PACE financing to the Orlando market is just a first step in the city's BEWES plan, which should include a resolution later this year that will enable information and transparency about the amount of energy and water used in large buildings.
A proposed mandate for building owners to participate wouldn't take effect until at least May 2018. The information would be available in an interactive database that shows commercial and apartment tenants the expected utility costs of city buildings. It would also provide new insight to investors on which commercial and multi-family properties offer lower operating costs.