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Local Option - Energy Improvement Financing Programs

Last Review: 2013-06-17
Incentive Type: PACE Financing
Eligible Efficiency Technologies: Custom/Others pending approval, Solar Water Heat, Photovoltaics, Wind, Geothermal Electric, Geothermal Heat Pumps
Applicable Sectors: Commercial
Terms: Loan maturity may not exceed the lesser of the weighted average of the useful life of improvements or 20 years
Payments must be equal annual payments
Interest rates locally determined, but must be sufficient to cover program costs.
Website: http://mn.gov/commerce/energy/topics/financial/PACE.jsp

Summary:

Note: The Federal Housing Financing Agency (FHFA) issued a statement in July 2010 concerning the senior lien status associated with most PACE programs. In response to the FHFA statement, most local PACE programs have been suspended until further clarification is provided.

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. Minnesota has authorized certain local governments to establish such programs, as described below. (Not all local jurisdictions in Minnesota offer PACE financing. Contact your local government to find out if it has established a PACE financing program.)

In April 2010, Minnesota enacted legislation (H.F. 2695) allowing cities (home-rule, charter or statutory), counties and towns to offer PACE financing programs that provide loans to local residents for energy conservation improvements, including certain renewable energy systems. Subsequent legislation (S.F. 3729) allows a local government to designate another authority -- referred to hereafter as the "implementing entity" -- to implement such a program. This could include a housing and redevelopment authority, economic development authority, port authority, or another entity permitted by law to exercise the powers of an authority. The authorizing laws sets a series of rules governing these local programs, but some details are left to the local government that establishes a program. Qualifying properties are defined as residential, multi-family residential, commercial, or industrial properties which would benefit from energy conservation improvements based on the results of a formal energy audit or renewable energy feasibility study.

Renewable energy is defined to include solar thermal, photovoltaic (PV), wind, and geothermal energy systems that generate electrical or thermal energy. Eligible solar thermal systems generally includes both water and space heating systems except for residential systems (1) that provide less than half of the energy used for that purpose in the home or (2) which are used to heat a hot tub or pool. All renewable energy systems must be used for on-site energy needs. Energy generated by the system may not be sold, transmitted, or distributed at retail or be used to power an off-site facility. The law appears to limit on-site generating capacity to 10 MW (the limit defined in Minn Stat. 216B.1611 describing standardized interconnection procedures). Other qualified improvements include energy efficiency measures which are permanently affixed to the property and which result in a net reduction of energy consumption, and equipment which enables electric vehicle charging.

Under the state law, implementing entities must set loan maturities at the weighted average of the useful life of improvements made to the property, not to exceed 20 years. Payments must be made in 20 equal annual installments. Interest rates are locally determined, but must be sufficient to cover program costs, including the issuance of bonds and any financing delinquencies. Loans amounts may not exceed 10% of the assessed value of the property and may include costs related to the required energy audit or feasibility study, equipment and labor costs, and performance verification. At least ten percent of the improvements financed by the program must be inspected and verified by the implementing entity. Loans must be secured with a lien against the property and must be coordinated with the Conservation Improvement Program (CIP) of the utility serving the property. Implementing entities may limit the number of properties for which a qualifying owner may receive financing. Programs must be designed such that they do not prohibit the financing of all cost-effective energy improvements not otherwise prohibited by law. "Cost Effective Energy Improvements" are defined as "energy improvements that have been identified in an energy audit or renewable energy system feasibility study as repaying their purchase and installation costs in 20 years or less, based on the amount of future energy saved and estimated future energy prices.”
Implementing entities are permitted to issue revenue bonds to initially fund a program. Proceeds from loan repayments, in the form of special assessments on participating properties, will be used to service bond principal and interest. The special assessment runs with the property in the event ownership of the property changes during the term of the loan.

In November 2011, Edina City Council voted to adopt the first PACE program in Minnesota. The Edina Emerald Energy Program provides financing for commercial properties for certain efficiency and renewable energy technologies. Program guidelines can be found here.

 


Contact:
Energy Information Center
Minnesota Department of Commerce
85 7th Place East
Suite 500
St. Paul, MN 55101-2198
Phone:(800) 657-3710 Ext.
Phone 2:()
Email: energy.info@state.mn.us
Web site: http://www.energy.mn.gov

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