The last few years have seen a slurry of executive actions on clean, sustainable energy from the Federal government. There’s way more than just the Clean Power Plan. So what is there and what does it mean?
In March of this year, President Obama signed an Executive Order, Planning for Federal Sustainability in the Next Decade, which also included some interesting policy steps and aggressive Federal energy targets. In August the White House announced a whole host of actions, some new and some not. Here’s just a few significant pieces from the August announcement.
- Making an additional $1 billion loan guarantee authority available and announcing new guidelines for distributed energy projects utilizing innovative technology and states looking to access this financing
- Unlocking Residential Property-Assessed Clean Energy (PACE) Financing
- Launching a new HUD and DOE program to provide home owners with a simple way to measure and improve the energy efficiency of their homes, by increasing homeowners borrowing power
Loan guarantees have been a much discussed tool of the Department of Energy (DOE). Perhaps you remember Solyndra? There are two key things to remember about the new action announced in August. First, DOE is no longer placing loan guarantees on companies, like Solyndra or Tesla, but on projects. This is notable because it makes loan guarantees company agnostic and technology-centric. In other words, DOE doesn’t care who you are or, to some degree, what you are selling. They only care that your project makes economic sense. If it does, they can help with a loan guarantee. A good example of this in practice would be an energy-storage project with a signed contract from a utility company.
Second, the new announcement calls for $1 billion on loan guarantees on distributed energy technologies. This includes technologies such as rooftop solar, energy storage, and smart grid technology. Loan guarantees have been around quite some time, even before the American Recovery and Reinvestment Act of 2009. This is a specific carve-out for distributed energy technologies which represents a fundamental bet on the future of energy in America.
Property Assessed Clean Energy (PACE) Financing
We wrote about PACE in Alabama a while back. Feel free to read up on it!
PACE financing has not always been well received. The main issue at hand is its senior loan position. Mortgage companies typically have the first right to the property after a governmental property tax lien. If you default on your property taxes, the government, typically local, can seize the property. The same thing can happen if you don’t pay your mortgage. But what happens if you don’t pay either? Well, the government gets their share first.
Herein lies the problem with PACE. If you are repaying energy-efficiency or renewable-energy upgrades through your property taxes, it becomes senior to the mortgage. If you default, there are less possible funds available to make the bank whole on the mortgage.
The big news here is Federal Housing Administration (FHA) backed loans are now compatible with PACE. Housing and Urban Development (HUD) is issuing a preliminary statement indicating the conditions under which borrowers purchasing or refinancing properties with existing PACE assessments will be eligible to use FHA-insured financing. Since FHA backs an enormous amount of mortgages, PACE could become much easier for millions of Americans.
*Note: But not in Alabama. PACE, as currently defined by Alabama law, is only available to commercial properties.
FHA, HUD and Energy Efficiency
It turns out that people are much less likely to default on a home that is energy-efficient. This is pretty intuitive actually. If the home costs less to operate, chances are higher that the homeowner will be able to make their monthly mortgage payment.
To that end, HUD and DOE are launching a program to provide potential homeowners with an easy way to measure and improve the energy efficiency of their homes. Under the new HUD and DOE Home Energy Score partnership, in areas where the Home Energy Score is available, single family households will be able to increase their access to financing tools to make energy-efficiency improvements.
Note: DOE’s Home Energy Score offers a “miles per gallon” type rating to estimate a home’s energy use on a 10-point scale. A “1” corresponds to the least energy-efficient homes and a “10” corresponds to the most energy-efficient homes, while the average U.S. home will score a “5.”
Through this new partnership, home buyers or homeowners who want to obtain an FHA-insured purchase or refinance a mortgage for a single family home that receives a Home Energy Score of 6 or higher will be eligible to increase their income qualifying ratio by 2 percentage points above the standard Single Family FHA limit, making it easier to secure financing to make these improvements.
Summing it Up
Most of the recent action can be described as those to make clean, sustainable energy easier for the average American. This is being achieved through new programs, reducing red tape and increasing investment in targeted areas. If you’re in the market for a new home or a new to you home, take a look at what is out there that you can take advantage of. Energy efficient mortgages and 203(k) renovation loans are still great tools to help you. Long story short? Sustainable energy at the individual level was already cost-effective. And it just got easier too!