We’ve been wanting to provide an update to our NJPACE stakeholders for some time now, but it seems like every time we go to write something down there’s a new and more promising development showing up on the horizon.

For some of us, who can’t wait to get started funding projects, it seems like the state officials who need to approve each municipal program have been slow to respond. But the reality is that PACE is complicated, much more so than it seems.

For one thing, it really is an innovative concept — using the local government’s authority to impose Special Assessments to help commercial property owners finance energy improvements to their own properties. Special Assessments have never been used for such purposes in the past, and they’ve never been voluntary or limited to a single property owner. Rather, they’ve allowed local governments to finance public improvements, such as sewers and sidewalks, and then recover the bulk of the costs from those property owners who most directly benefit. We’ve even heard municipal officials, once they grasp the PACE concept, wonder aloud “Is this legal?”

Well, yes it is, because there’s a law on the books that specifically permits it, and it does so because getting property owners to cut back on their energy consumption and switch to renewables is a public, as well as a private, benefit. Reducing wasteful energy consumption helps the entire community become  more energy independent; it reduces the load on the aging electrical grid, which is pretty much at capacity; and it saves dollars that would otherwise flow out of the community to suppliers, many of whom are out of state. Switching to renewables has the further added benefit of reducing carbon pollution and making property owners more self-sufficient; in many cases it is already cheaper; and it can often be coupled with backup systems that can provide emergency power without requiring expensive and highly polluting diesel generators.

So the next question that usually arises is, if this is such a good deal for commercial property owners, why do they need this new financing mechanism? Can’t they just go out and borrow the money to make these improvements, knowing they’ll get a payback in a few years? Well, right there is a major part of the problem: No, because of the current tight credit markets, they can’t just easily borrow the money.

And even if they could, it would tie up their business credit on a long-term basis for a return that is only meaningful if they stay in business at that location long enough to just break even. Most business owners know that they need every bit of working capital to support their core business operations today and tomorrow, not to make long-term sustainability improvements. And hospitals, universities, churches, and multifamily property owners often just can’t afford to make these long-term investments, so they only replace their energy systems when they break down, and with the cheapest — not the most efficient — replacements.

Most of the other models for financing conservation and renewables don’t work that well either. Power Purchase Agreements (PPAs) are generally  advantageous for investors, not property owners: it’s like letting someone put a small power plant on your property, and then sell you the power. Yes, maybe today it’s at a discount, but if you’re locked in for 20 years, with an automatic escalation clause, it might not be such a good deal. Leases usually only go for seven to ten years, and typically require a 20% balloon payment at the end; and then when you do own the equipment it’s coming up on time to replace it, but the leasing company has already depreciated it. In any case, leases are often treated for tax purposes as a liability, and encumber the property owner’s personal or business credit. PACE, because it is attached to the property, is not treated as a principal liability on the owner’s balance sheet, and does not depend on their rating as a borrower.

We’ve been explaining this to municipalities, counties, and property owners throughout New Jersey, as well as to the state agencies. What remains to be worked out, however, are the precise mechanisms whereby municipalities will impose the Special Assessments and register them for tax collection purposes, bill for them, collect them, and then separate them out for payment to the trustee. We need legal agreements that protect the municipality in the event of default (which, in the experience of most PACE programs in other states up to this point, almost never occurs); we need mortgage lenders to provide consent; and we need capital providers willing to channel money into these projects at affordable rates.

We’re also interested to recognize that we are no longer alone in promoting the benefits of PACE in New Jersey, and that we’re about to get a couple of “competitors.” While these are private companies, and certainly out to make a buck, we welcome them as colleagues. It’s encouraging that some other folks are interested in getting into the game in New Jersey, and see it as a profitable opportunity, something that we’ve believed all along.

We originally set out to create a state-wide program, that would serve much the same function as Connecticut’s C-PACE, except without being a government agency. After investigating other states’ programs, and looking at several different business models, we decided that a nonprofit organization was needed to provide an effective open market platform for PACE transactions.

But we emphasized from the outset that we did not want to be an “exclusive” program. We are not seeking to become “the” exclusive administrator for a town or a county. We hope that others won’t either. We have seen in other states that it can become dysfunctional when one exclusive program becomes a “gatekeeper,” requiring all projects to use its financing, excluding other programs. We’re looking to unleash the industry, not to capture it or corner it. Because we don’t want municipalities to end up in exclusive arrangements, we expect that others will want to bring PACE projects to the market. This is what is happening today. And we welcome it. We’re proud to have laid the groundwork that makes this possible.

In a little more than two years, we’ve educated over twenty municipalities, and several counties, about the opportunity that PACE presents, in terms of economic development and jobs, energy cost savings, and a cleaner energy future. We’ve had extensive discussions with the Board of Public Utilities and the NJ Clean Energy Program; we’ve spoken to dozens of contractors and installers, and we’ve met extensively with bankers, investors, and law firms. We’ve built an independent, low-cost platform, with a remarkable team of executives, advisors, interns, and volunteers.

So while it’s taking longer than any of us hoped, we believe that the momentum for PACE is now unstoppable. As noted elsewhere, we’re opening up our program to accept contractor registrations, project pre-applications, and additional capital providers. We already have more than a dozen companies in our NJPACE Alliance, and we’re fielding calls about projects two or three times a week. We have a commitment letter from Clean Fund, the premier PACE investment company in the country, that just closed a $26 million deal with C-PACE in Connecticut. And we have an agreement in the works with Noveda Technologies to provide world class energy performance monitoring and verification for virtually all NJPACE projects.

So we’re ready to go full speed ahead. And so are our partners. New Jersey is on the edge of a clean energy revolution. We’re proud to be leading it.