This week’s story by Joe Gose in the NYT provides an excellent overview of Commercial Property Assessed Clean Energy (C-PACE) programs, bringing this “little-known” way to secure low-cost capital into view for a wider audience.

The piece describes the features that make C-PACE financing so attractive for clean and energy-efficient development. A conventional loan is taken out and paid back by an individual person or business, but a loan through a C-PACE program is attached to a property and paid as part of the real estate tax bill.

C-PACE gives borrowers more freedom to take on long-term loans and make significant improvements to their buildings. Under a conventional loan agreement, borrowers may worry about what will happen if they need to sell the building before the loan is repaid. The bank making the loan also has to be concerned about the risk that the borrower may default. These concerns can lead borrowers to take out shorter loans for smaller amounts, and banks to charge high rates for the loan.

But, in many cases a larger investment could greatly improve a building’s value and lower its monthly energy bills. With C-PACE, the loan transfers to the new buyer if the building is sold, reducing costs and risks for both the lender and the borrower. As the NYT quotes from one developer:

“Developers are always on the lookout for new tools to make their projects better,” said Michael T. Moylan, president of Shamrock Development. “We saw that PACE was going to be good for us — it made our buildings more energy efficient, and long-term fixed-rate financing is always attractive.”

While the NYT mainly looks ahead to the future of PACE, the program’s history is tied closely to Green Banks. The Connecticut Green Bank played a key role in the expansion of C-PACE in 2012. The model spread, and C-PACE is now offered through other Green Banks including in NYC and Rhode Island.

As CGC Executive Director Jeff Schub described to Yale Insights in a recent interview, the Connecticut Green Bank was instrumental in helping C-Pace to gain traction:

Initially, when the Connecticut Green Bank launched the program, private lenders weren’t actually making any loans, so the green bank used its own funds to finance C-PACE projects. Then they securitized those loans and sold them into a secondary market. 

Very quickly, that scaled C-PACE to a very different level. The Connecticut Green Bank partnered with a private financial institution, Hannon Armstrong, to set up a $100 million warehouse to co-invest in C-PACE projects. Many more private lenders have come into the market and are making loans and sales all the time.

Looking ahead to the future, another factor not mentioned in the story could be important to C-PACE: the National Climate Bank. With $35 billion to invest and capitalize state and local Green Banks, the Climate Bank could help these successful programs expand still further, saving both energy and money for businesses across the country.