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California

California

Incentives/Policies for Energy Efficiency

Printable Version
Local Option - Municipal Energy Districts   

Last DSIRE Review: 09/29/2014
Program Overview:
State: California
Incentive Type: PACE Financing
Eligible Efficiency Technologies: Locally determined
Eligible Renewable/Other Technologies: Locally determined
Applicable Sectors: Commercial, Industrial, Residential, Multi-Family Residential, Agricultural
Terms:Locally determined
Authority 1:
Date Enacted:
Date Effective:
CA Public Resources Code ยง 26050 et. seq.
4/21/2010
4/21/2010
Authority 2:
Date Enacted:
CA Streets and Highways Code ยง 5898.10 et. seq.
7/21/2008, subsequently amended
Summary:

Note: In 2010, the Federal Housing Finance Agency (FHFA), which has authority over mortgage underwriters Fannie Mae and Freddie Mac, directed these enterprises against purchasing mortgages of homes with a PACE lien due to its senior status above a mortgage. Most residential PACE activity subsided following this directive; however, some residential PACE programs are now operating with loan loss reserve funds, appropriate disclosures, or other protections meant to address FHFA's concerns. Commercial PACE programs were not directly affected by FHFA’s actions, as Fannie Mae and Freddie Mac do not underwrite commercial mortgages. Visit PACENow for more information about PACE financing and a comprehensive list of all PACE programs across the country.

Property-Assessed Clean Energy (PACE) financing effectively allows property owners to borrow money to pay for energy improvements. The amount borrowed is typically repaid via a special assessment on the property over a period of years. California has authorized local governments to establish such programs, as described below. (Not all local governments in California offer PACE financing; contact your local government to find out if it has established a PACE financing program.)

In July 2008, California amended its state law to enable cities and counties to offer PACE financing programs to property owners. Financing may be used for improvements to developed property only if the property owner agrees to a contractual assessment (that is, agrees to repay the loan) on his/her property tax bill for up to 20 years. To be eligible, a property owner must have a clean property title and must be current on property taxes and mortgages. The law requires that local governments first establish draft plans that will be subject to a public hearing. Subsequently, city/county officials will develop a report, which will be voted on by the local legislative body. The report must include:

  • A map delineating the area where contractual assessments are proposed;
  • A draft contract agreement between property owners and the local government;
  • Eligible facilities;
  • Eligible distributed renewable-energy systems;
  • Eligible energy-efficiency improvements;
  • A designated local official who authorized to enter into contractual assessments on behalf of the local government;
  • A maximum aggregate dollar amount of contractual assessments;
  • A method for prioritizing applications/requests in the event that applications exceed the authorization amount;
  • A plan for raising a capital amount required to pay for work performed pursuant to contractual assessments; and
  • Costs incidental to financing, administration, and collection of the contractual assessment program among the consenting property owners and the city

Participating local governments may authorize the property owner to contract for the improvements or purchase equipment directly. Although local governments determine which energy projects are eligible for financing, the California Energy Commission (CEC) recommends photovoltaics (PV), geothermal heat pumps, fuel cells, high-efficiency HVAC systems, insulation, and high-efficiency windows.

The interest rate of bonds may be determined by an index, but it will be fixed at the time the bonds are issued. The assessments levied, interest and any penalties constitute a lien against the improved property until loans are paid.

Senate Bill 77 of 2010 requires the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to develop and administer a PACE Reserve program to help reduce overall program costs. The bill appropriated $50 million to the authority through January 1, 2015. The bill also authorizes the authority to issue revenue bonds to help support PACE programs. Click here to read more about the CAEATFA's efforts to support PACE.  

California voters provided even more support for PACE programs by approving Ballot Proposition 39 in November 2012. The new law closes a tax loophole, which is expected to provide $1 billion in additional revenue every year. According to the law, half of the new funding collected in the first five years must be used for renewable energy and energy efficiency projects at schools and public facilities, workforce development, and providing assistance to local governments in establishing and implementing PACE programs.

In California, local governments that have implemented programs using this property tax financing mechanism include:

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Disclaimer: The information presented on the DSIRE web site provides an unofficial overview of financial incentives and other policies. It does not constitute professional tax advice or other professional financial guidance, and it should not be used as the only source of information when making purchasing decisions, investment decisions or tax decisions, or when executing other binding agreements. Please refer to the individual contact provided below each summary to verify that a specific financial incentive or other policy applies to your project.

While the DSIRE staff strives to provide the best information possible, the DSIRE staff, the N.C. Solar Center, N.C. State University and the Interstate Renewable Energy Council, Inc. make no representations or warranties, either express or implied, concerning the accuracy, completeness, reliability or suitability of the information. The DSIRE staff, the N.C. Solar Center, N.C. State University and the Interstate Renewable Energy Council, Inc. disclaim all liability of any kind arising out of your use or misuse of the information contained or referenced on DSIRE Web pages.

Copyright 2013 - 2014 North Carolina State University, under NREL Subcontract No. XEU-0-99515-01. Permission granted only for personal or educational use, or for use by or on behalf of the U.S. government. North Carolina State University prohibits the unauthorized display, reproduction, sale, and/or distribution of all or portions of the content of the Database of State Incentives for Renewables and Efficiency (DSIRE) without prior, written consent.