Improving the efficiency of the commonwealth’s commercial and industrial buildings is a major component of the state’s efforts to reduce energy demand, electricity costs and greenhouse gas emissions, while at the same time spurring job growth in the clean energy sector.
Indeed, the state’s energy efficiency programs and policies toward conservation have resulted in hundreds of millions of dollars in savings for commercial and industrial consumers and made Massachusetts the top state in the country for energy efficiency programs. However, growth in commercial and industrial programs is beginning to slow because of challenges to accessing private capital for the next generation of investment.
There are multiple challenges in financing commercial and industrial energy efficiency upgrades, including increased competition for limited capital, comparably lower and longer returns on investment, and the need for energy efficiency upgrades to be deeper in scope and cost.
To continue the commonwealth’s successful energy efficiency programs and the corresponding economic and environmental benefits, the commonwealth must adopt new programs to address more sophisticated energy efficiency investments and provide updated financing options to spur the next round of private investment in the state’s commercial and industrial building stock.
Massachusetts has attempted to address these issues in the past. In 2010, as part of municipal relief legislation, the state adopted a program establishing an Energy Revolving Loan Fund to allow energy efficiency improvements by the owners of private facilities to be funded by bonds issued on behalf of cities and towns and paid for through assessments similar to real estate taxes. According to a 2012 review of the 2010 program by the Department of Energy Resources, the legislation, while well intentioned, had several shortcomings that have inhibited its implementation and use – mainly that the cost and complexity for an individual municipality to implement the program was too daunting.
Fortunately, a bill to address these challenges, sponsored by Sens. Brian A. Joyce, Benjamin B. Downing, Daniel A. Wolf and Frank I. Smizik, was passed unanimously by the Senate on July 10 and was admitted to the House, where it was referred to the Committee on Ways and Means on July 14. Bill S. 2255, “An Act Fueling Job Creation Through Energy Efficiency,” will establish a dedicated and robust Property Assessed Clean Energy (PACE) financing program in Massachusetts. The pending legislation establishes a new program (similar to a program in place in Connecticut) available to the owners of commercial and industrial buildings to be administered by Mass. Development and the Department of Energy Resources.
Under the proposed program, Mass. Development is authorized to issue project-specific PACE bonds for 100 percent financing over the life of a project or up to 20 years, whichever is less. These bonds are secured through a “betterment” assessment administered by the city or town where the building is located. Projects are required to meet financial underwriting guidelines established by Mass. Development: agreeing to conditions on the financing in order to ensure timely repayment, including, but not limited to, placement of a lien; and obtaining consent from any existing mortgage holder of the property regarding the priority of the PACE bond payments, among other requirements. A municipality must opt in to the program and authorize the property levy in a principal amount sufficient to pay the costs of the energy improvements and any associated costs including municipal and state administrative costs.
The program proposed by the pending legislation does not involve any additional subsidies, government payments or other liability to the commonwealth or its cities and towns. The program can help facilitate further investment in energy efficiency and renewable development by allowing commercial and industrial property owners to access financing for such investments and repay the loan through an assessment similar to an assessment for a new sewer line or other permanent improvements to property.
Loans under this program can help address barriers to more investment by commercial and industrial property owners by providing a vehicle to finance improvements that reduce the energy load of a building, while addressing some of the current barriers to energy efficiency improvements that can be hard to value, are not easily repossessed and do not hinder the transferability of the property.
This type of funding can be (and is encouraged to be) combined with other state energy efficiency program incentives. The Commercial Sustainable Energy Program complements current incentives offered through the commonwealth’s utility administered energy efficiency plans and will result in increased program participation, more private investment, increased jobs in the green sector and savings on energy costs – all furthering Massachusetts’ environmental goals while maintaining the commonwealth’s competitiveness.
Jed M. Nosal is counsel in Brown Rudnick’s Government Law and Strategies Group and former chief of the Massachusetts Attorney General’s Office, Business and Labor Bureau. John W. Wadsworth is an energy and environmental partner at Brown Rudnick.
