*A version of this article appeared in the August 2013 issue of the Traverse City Business News.
It’s time for Grand Traverse County to use a state law to help local firms cut energy costs and boost bottom lines.
The 2010 law, called PACE—Property Assessed Clean Energy—allows local governments to establish bonds for loans to improve commercial buildings’ efficiency or install renewable energy devices, cutting their utility bills. Local units then use special property tax assessments for loan repayments.
PACE also allows local units to have private lenders fund PACE projects, and still use the assessments to collect for them.
Either way, the loan rates and terms are so favorable that the energy savings can cover the assessments, immediately boosting the business’s bottom line.
PACE supporters like the Michigan Land Use Institute’s Brian Beauchamp, who, along with SEEDS, another local non-profit, manages TC Saves, the city’s very successful residential efficiency program, says adopting PACE for the county would help businesses and residents.
“Businesses pays no upfront cash, thanks to the loan,” Beauchamp explains, “and so they quickly see small improvements in their bottom line. When the loan is retired, they see big improvements. Plus, local contractors get work installing efficiency measures or renewables like solar panels, wind turbines, and geothermal systems.”
PACE would also help utilities meet their state-mandated energy-saving goals, slowing the rise of their own energy costs, and boosting the community’s business-friendly reputation.
A June 2012 study by MLUI and SEEDS found that a program that cut energy use for half of the county’s businesses and all of its homes by 25 percent, which experts see as a realistic goal, would provide, on average, 76 jobs yearly; pay for itself through the energy savings; and put an additional $212 million in energy savings in residents’ and business peoples’ pockets.
Ann Arbor is Michigan’s first “PACE city.” The Clean Energy Coalition, a non-profit that promotes and manages PACE there, says five businesses are spending about $560,000 from the city’s efficiency bond on more-efficient lighting and heating, upgraded cooking equipment, building insulation, and solar shingles in the program’s first round of bond-based funding.
“After seeing Ann Arbor businesses breaking ground on energy-saving projects, we hope that additional municipalities will make PACE a priority,” said Sean Reed, CEC’s executive director.
Southfield and Ingham County are doing that, but are using a different approach, promoted by Andy Levin, formerly of the Department of Energy, Labor, and Economic Growth.
Levin uses private capital, not public bonds, to finance projects. He’s identified banks and investment firms willing to provide the necessary long terms and low interest rates.
Lenders like the program because, even though returns are modest, Southfield, Ingham, and other units adopting Levin’s “Lean & Green Michigan” PACE ordinance are using identical rules. Those include first-lien status, similar assessment fee and approval procedures, and efficiency guarantees that hold local governments harmless for quality problems or defaults. They also like the fact that PACE loans elsewhere are seeing very low default rates.
“What this really does is blow open the market for everybody,” Levin says, “from big energy efficiency companies like Johnson Controls, which can provide upfront project capital, to Fred the HVAC man, who cannot do that. Now Fred, whose proposals gather dust because his clients don’t have the cash and don’t want to borrow, can say, ‘You don’t have to borrow; you are going to make money.’”
Ray Minervini, developer of the Village at Grand Traverse Commons, says he likes what he’s heard about PACE.
“Everything we do with our 130-year-old buildings has us thinking long term,” Minervini said. “So I would absolutely consider using a program like that, especially today, when it’s very hard to put deals together.”
Although some observers question whether a small business would want such programs, Kim Pontius of Traverse Area Association of Realtors said he’s glad his organization retrofitted its small building, cutting heating and electric bills by, respectively, 46 and 26 percent.
“Over the lifetime of the building, it amounts to substantial profits,” he said.
Beauchamp said a county-based PACE program is a logical step after TC Saves, which now saves energy for 550 Traverse City homeowners.
“It would cost the county literally nothing,” he observed, “make businesses more profitable, and put our neighbors to work.”
Jim Dulzo is senior energy policy specialist for the Michigan Land Use Institute. Reach him at [email protected].