What is C-PACE and How Can it Help in Financing Renewable Energy Projects in Colorado this 2024?
C-PACE, or Commercial Property Assessed Clean Energy, is an innovative financing mechanism that enables commercial and industrial property owners to access long-term, affordable capital for energy efficiency, renewable energy, water conservation, and resilience projects.
Modeled after the successful residential PACE programs, C-PACE provides a unique solution that aligns the interests of building owners, contractors, capital providers, and local governments.
Table of Contents
Understanding Colorado C-PACE
At its core, C-PACE is a voluntary, tax assessment-based financing program that allows property owners to repay the cost of eligible improvements through a special assessment on their property tax bill.
This approach offers several key advantages, including 100% financing with no out-of-pocket expenses, long repayment terms of up to 25 years, and the ability to transfer the assessment obligation to new owners upon sale.
This transformative financing mechanism is empowering commercial and industrial property owners to modernize their buildings, enhance energy efficiency, and embrace renewable energy solutions – all while driving economic growth and environmental stewardship.
C-PACE Program Structure
The Colorado C-PACE program is structured as a statewide “District” enabled by state legislation, with individual counties opting in to participate. This decentralized approach allows for local control and customization, while maintaining the benefits of a coordinated, statewide initiative.
The New Energy Improvement District (NEID), a public-private partnership, serves as the program sponsor and works closely with the Colorado Energy Office to administer the C-PACE program. The NEID board, comprising seven members, oversees the program’s operations and ensures its alignment with the state’s energy and sustainability goals.
One of the unique features of the Colorado C-PACE program is its self-sustaining design. The program is funded through a participation fee, typically 2.5% of the financed amount (capped at $75,000 per project), which is applied to successfully completed transactions. This model allows the program to operate without the need for public funds, ensuring its long-term viability and scalability.
Eligible Property Types and Improvements
C-PACE financing in Colorado is available for a wide range of commercial and industrial property types, including:
- Office buildings
- Retail spaces, hotels
- Industrial facilities
- Agricultural operations
- Healthcare institutions
- Mixed-use developments
- Warehouse or storage
- Education property
- Nonprofit and multifamily (5+ units) properties.
The list of eligible improvements is equally diverse, encompassing energy efficiency upgrades, renewable energy systems, water conservation measures, and resilience enhancements. Some examples include:
- HVAC system replacements and controls
- Boiler, chiller, and furnace upgrades
- Building envelope improvements (insulation, windows, roofs)
- Combined heat and power (CHP) systems
- High-efficiency lighting retrofits
- Solar photovoltaic (PV) installations
- Water efficiency upgrades (low-flow plumbing, smart irrigation)
- Elevator modernization
- Electric vehicle (EV) charging stations
- Resilience measures (fire, flood, wind, air quality protection)
In addition to the physical improvements, C-PACE financing can also cover soft costs such as energy audits, renewable energy feasibility studies, extended equipment warranties, and even the costs associated with environmental remediation or building structural reinforcement.
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The C-PACE Process
As Colorado continues to prioritize sustainability and economic growth, the C-PACE program stands out as a crucial tool for fostering a greener, more resilient built environment.
By leveraging the power of property assessments, C-PACE facilitates substantial investments in green technology and infrastructure without upfront costs, making it easier for businesses to enhance their operational efficiency and environmental impact. Here’s how the process starts:
Project Prequalification and Evaluation
The C-PACE process begins with the property owner submitting a prequalification submission (PQS) form to the program administrator. This form gathers key information about the building, the proposed project, and the existing mortgage holder(s).
Upon receiving the PQS, the program administrator reviews the project for eligibility and conducts an economic feasibility analysis. This evaluation ensures that the proposed improvements will generate sufficient energy cost savings to offset the C-PACE assessment payments, creating a cash-flow-positive scenario for the building owner.
Capital Provider Selection and Financing
Once the project is deemed eligible, the property owner can select a preferred C-PACE capital provider from the program’s pre-qualified list. Alternatively, the program administrator can assist the owner by reviewing the project with multiple capital providers to determine their funding interest and obtain competitive financing term sheets.
The capital provider then works with the property owner to execute the financing agreement, which outlines the terms of the C-PACE assessment, including the repayment schedule, interest rate, and any applicable fees.
Mortgage Holder Consent
Securing written consent from the existing mortgage holder(s) or construction lender(s) is a critical step in the C-PACE process. The C-PACE assessment lien holds a priority status similar to a sewer assessment, requiring the mortgage holder’s approval.
Mortgage holders often view C-PACE favorably, as it can increase the owner’s ability to repay the mortgage, enhance the building’s value, and pose minimal risk due to the non-accelerating nature of the C-PACE assessment. To date, over 40 unique mortgage holders have consented to C-PACE projects in Colorado.
Project Implementation and Repayment
With the financing in place and the mortgage holder’s consent secured, the property owner can proceed with the implementation of the approved energy efficiency, renewable energy, or resilience upgrades. The C-PACE assessment payments are then added to the property’s annual tax bill, with the capital provider receiving the funds directly from the county.
One of the key advantages of C-PACE is that the repayment obligation remains with the property, rather than the individual owner. This feature allows the assessment to transfer to the new owner upon the sale of the building, ensuring a seamless transition and continued investment in the property’s sustainability.
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C-PACE Project Potential and Benefits
The C-PACE program in Colorado has already demonstrated its transformative impact, with a diverse portfolio of successful projects across the state. From multi-million dollar retrofits to innovative new construction developments, C-PACE has unlocked a wealth of benefits for building owners, contractors, mortgage holders, capital providers, and local communities.
Building Owner Benefits
C-PACE financing offers building owners a compelling value proposition, including:
- 100% financing with no out-of-pocket expenses
- Long-term repayment periods of up to 25 years
- Improved cash flow, as the energy cost savings often exceed the C-PACE assessment payments
- Increased property value and enhanced competitiveness in the market
- Ability to transfer the repayment obligation to new owners upon sale
Contractor and Developer Benefits
For contractors and developers, C-PACE has become an invaluable tool in their arsenal, allowing them to:
- Offer a more comprehensive suite of energy efficiency, renewable energy, and resilience upgrades
- Secure longer-term financing that aligns with the useful life of the improvements
- Differentiate their services and win more projects by providing attractive, cash-flow-positive financing solutions
- Unlock new opportunities in the growing sustainable building market
Mortgage Holder and Capital Provider Benefits
Mortgage holders and capital providers have also recognized the benefits of C-PACE, including:
- Increased collateral value and reduced default risk for the mortgage holder
- Secure, impact investment opportunity for capital providers, with the C-PACE assessment lien holding a priority status
- Ability for mortgage holders to serve as C-PACE lenders themselves, diversifying their portfolio and revenue streams
Community and Environmental Benefits
Beyond the direct benefits to individual stakeholders, the Colorado C-PACE program has also delivered significant benefits to local communities and the environment, such as:
- Job creation and economic development through building improvement projects
- Reduction in greenhouse gas emissions and other environmental pollutants
- Alignment with state and local sustainability goals, including building performance standards and emissions reduction targets
C-PACE for New Construction
The Colorado C-PACE program has also expanded its eligibility to include new construction projects, providing an innovative financing solution for developers and building owners.
Under the new construction C-PACE guidelines, eligible projects can receive financing for 15% to 35% of their total construction costs, depending on the building’s energy performance. To qualify for the maximum 35% financing, the project must demonstrate compliance with the 2021 International Energy Conservation Code (IECC) or better.
This C-PACE financing can be used in lieu of more expensive mezzanine debt or equity, allowing developers to lower their weighted average cost of capital and ultimately improve the project’s financial viability. By “pushing the envelope” on energy efficiency and renewable energy integration, new construction C-PACE projects can set new benchmarks for sustainable building design in Colorado.
C-PACE Retroactive Financing and Refinancing
The Colorado C-PACE program also offers retroactive financing and refinancing options, further enhancing the program’s flexibility and appeal.
Retroactive Financing
Retroactive financing allows property owners to pay down existing debt and/or fund operational reserves for new construction, gut rehab, and existing building retrofit projects that were completed within the past three years. This provides an opportunity for owners to optimize their capital structure and unlock additional value from their recent investments.
Refinancing
The C-PACE program also enables property owners to refinance their outstanding C-PACE assessment lien, either with their existing capital provider or by securing financing from a new lender. This option allows owners to potentially access better terms, lower interest rates, or align the repayment schedule with their long-term property management goals.
C-PACE Supporting Solar Thermal Heating Projects
Solar thermal projects, which focus on advanced thermal energy solutions like solar thermal systems, are an excellent fit for Colorado’s C-PACE financing. These projects utilize solar energy to heat water or air, offering a sustainable and cost-effective way to reduce energy consumption and greenhouse gas emissions.
By integrating solar thermal systems, commercial property owners in Colorado can benefit from substantial energy savings and operational efficiencies. The C-PACE program provides a streamlined financing option for such projects, enabling property owners to fund these thermal energy upgrades with minimal upfront costs.
Get the Right Financing with C-PACE Colorado
As we look to the future, the potential of C-PACE in Colorado is boundless. Whether you’re a building owner seeking to modernize your property, a contractor looking to expand your service offerings, or a capital provider eager to invest in impactful, sustainable projects, the Colorado C-PACE program stands ready to support your goals and drive the state’s transition to a more energy-efficient, resilient, and environmentally conscious built environment.
To get started with C-PACE in Colorado, I encourage you to visit the program’s website at www.copace.com and explore the wealth of resources available, from contractor registration to project prequalification. Together, let’s harness the power of C-PACE and build a brighter, more sustainable future for Colorado.
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