Clean-energy financing promoted in Puerto Rico
Fundación Borincana: PACE Program Supports Green Energy, Resiliency, H2O Conservation; Paid via Property Tax
Editor’s note: The following was first published in the May 2 – 8, 2019, issue of Caribbean Business.
The founder of a not-for-profit group that seeks to push Puerto Rico’s energy transformation is promoting legislation that would establish a program to allow property owners to obtain financing for energy improvements and pay for them through their property tax bill.
Thomas King, managing partner of private hedge fund CrossRiver Capital, and founding partner of U.S. Renewables Group, the first private equity group focused solely on renewable power, in 2018 also created Fundación Borincana, a Puerto Rico organization to promote initiatives for the island’s energy transformation from fossil fuels to renewables.
He told Caribbean Business the enactment of the island’s energy public policy is the right step toward energy transformation.
“It is still risky since there is a lot of work to be done so investment can thrive in Puerto Rico…. Large-scale utility renewables will be difficult to finance in coming years unless something else is done but the door is open for small-scale projects,” he said. “The real question now is access to financing.”
Fundación Borincana is promoting enabling legislation to establish a PACE Program in Puerto Rico, an initiative that is already in existence in some 35 U.S. jurisdictions. Property Assessed Clean Energy, or PACE, is a structure that allows business and residential property owners to obtain low-cost long-term financing for energy efficiency, water conservation, hurricane preparedness, renewable energy projects, and other resiliency measures for their properties.
According to Fundación Borincana, PACE authorizes property taxing authorities to work with private-capital providers to offer upfront financing to property owners for qualifying projects and to collect the repayment through the property’s tax bill. “This is fundamentally the same municipal finance mechanism used to fund public works (such as roads, sewers and stadiums) for a private purpose,” the website says.
Financing terms extend up to 30 years in some jurisdictions, based on the types of improvements, and usually cover 100 percent of improvement costs.
The initiative will allow homeowners to obtain financing to put solar equipment and other efficiency devices on their properties/homes.
King said the new energy policy, which calls Puerto Rico to rely entirely on renewables by 2050, is a very advanced legislation that provides tremendous opportunities.
He said the proposed Integrated Resources Plan, which is still under evaluation, will make it difficult to put renewables in place. Puerto Rico Electric Power Authority officials have said they plan to use natural gas as a transition to renewables. “A certain amount of natural gas is needed over the next 10 years. But not in the amounts contained in the scenarios [in the IRP,]” he said. King also rejected remarks by Bruce Walker, of the U.S. Department of Energy, who said San Juan needs 1,200 megawatts (MWs) to 1,600 MWs of natural gas-powered capacity.
The island needs to create the conditions that spur numerous microgrids and minigrids to be sustainable. However, he said obtaining financing for renewable projects or equipment is often difficult.
He said the PACE program is a solution. A loan obtained through a PACE program is attached to the property and not the homeowner. Other benefits of PACE are that it helps create jobs in a green economy and can leverage the existing infrastructure of the Municipal Revenue Collections Center (CRIM) and, with the help of a public-private partnership, operate the program to generate additional revenues. Special structures can be employed to finance third-party-owned energy systems attached to the property. Funds for the program come from the private sector. King said he has had conversations with lawmakers about the initiative since October.
“We are actually having educational conversations with people in government, so they can make it a legislative priority,” he said.
Nonetheless, the PACE program has had its problems in some jurisdictions with some consumers. According to published reports, homeowners have had problems selling homes with a PACE lien. Because the loan follows the property and not the homeowner, homeowners are qualified for the home improvements without any assessment on their ability to pay. Homeowners have also complained that PACE contractors lie about the costs of financing as part of selling the program. This creates a situation in which homeowners can suddenly owe far more in property taxes than they can afford to repay because the PACE lien is paid through the property tax.
Some banks do not want PACE liens to have a priority payment over a mortgage, making it difficult to obtain a loan.
King said he is aware of the problems but noted that if a homeowner defaults on a mortgage, the PACE lien is not impacted nor are its payments accelerated. He said PACE loans, like other obligations, have to be paid when due. “Typically, the life of a PACE loan does not exceed the life of the improvement it finances,” he said.
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