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Mike Stark

Mike Stark

Posted: September 20, 2010 01:06 PM

Who's Killing the PACE Program?

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The PACE (Property Assessed Clean Energy) program is simple and brilliant: Cities borrow money using their credit and then make that money available to homeowners who, in turn, use it to install solar systems and other green technologies. The money given to homeowners is paid back by special assessments on their property taxes.

By all accounts, the PACE program is remarkably successful: It's been adopted by 23 states and the District of Columbia. It creates jobs, lowers utility bills for homeowners, cuts pollution and easily transfers to new homeowners when homes change hands.

It also holds promise for enabling the rapid scaling of home solar panel installation across America, which lags far behind Germany, the world's solar leader, despite the fact that Germany has the sunshine equivalent of Alaska. PACE could make an enormous contribution to cleaning up America's energy supply. And that created some enemies for the PACE program.

Utility companies saw a future hit to their bottom lines; so did the coal industry, which supplies 50 percent of fuel we now use in this country. Their reaction? Sic their lobbyists on any politician that'd take their dirty money and help them tank the PACE program.

The issue came to a head this year when the country's biggest lenders decided to change their rules in the middle of the game. To the extreme surprise and dismay of the environmental and solar energy communities, Fannie Mae and Freddie Mac, ostensibly private corporations, but nonetheless two of the largest recipients of government (taxpayer) largesse, decided that homeowner participants in the PACE program were in default on their mortgages (as if Fannie and Freddie needed even more foreclosures on their hands). Moreover, so long as existing PACE liens persist, Fannie and Freddie will not allow homeowners to refinance their mortgages. The legal terrain is murky, but the nut of the argument is that because the PACE liens assume a higher priority than mortgage notes, Fannie and Freddie are unjustifiably put at risk and must take steps to protect themselves.

After Fannie and Freddie changed their rules, Congress and the White House got involved. Several rounds of negotiation followed. According to Cliff Staton, a Vice President at Renewable Funding, Fannie and Freddie were ultimately offered a full government guarantee against any loss whatsoever from PACE liens.

Fannie and Freddie declined; they broke off negotiations and walked away from the table.

Nobody knows why. After all, Fannie and Freddie were in a pretty strong position. They could have taken the deal and claimed its precedential value: thereafter, any superior liens would require the full faith and credit of the United States for Fannie and Freddie to accept them. That would have been a huge win for them. Instead, they picked up their ball and went home without another word.

Given how important the PACE program is to the fate of America's clean energy future, it seems important to identify who specifically is responsible PACE's imperiled state. As the first step toward that endeavor (more investigations and reports are in the pipeline), I pursued a tip I received from a long-time environmentalist that the utility and coal lobbies had received cover from a solar finance company, SunRun, described by an industry source as a "rogue" player in the otherwise tightly knit solar industry.

SunRun has pioneered solar financing that competes with PACE's lower-cost model. If a homeowner can get money from their local community, they do not need a for-profit enterprise like SunRun to finance their solar installations.

After Fannie and Freddie stopped negotiating, Congressman Mike Thompson (D-CA) decided to resolve the problem with a legislative fix. He and 48 co-sponsors introduced a bill that, if passed, ensures that homeowners with mortgages held by Fannie and Freddie will be able to participate in PACE without having to worry about losing their homes or their ability to refinance.

That's where it seems SunRun got involved. From SunRun's perspective as a for-profit finance company for solar equipment, PACE is a competitive threat. SunRun must have been smiling the grin of a Cheshire cat when Fannie and Freddie ended negotiations, effectively neutering the PACE program. Rep. Thompson's amendment had to have hit them like a bucket of cold water. Suddenly, a threat they thought had been removed re-emerged. If the Thompson's bill passes without amendment, SunRun will be forced to compete with PACE again.

According to an email circulating in solar circles that was sent by Adam Browning, the founder of The Vote Solar Initiative, SunRun attempted to hobble Thompson's efforts to save PACE. At its core, amendment language SunRun authored would delay the effect of Thompson's bill until SunRun's business model is accommodated in each respective state. Browning, a widely respected and long-time solar advocate, points out that state legislatures and local governments are not known for acting quickly. According to Browning, the best-case scenario under the SunRun amendment is that the Thompson fix will be long delayed. The worst-case scenario will see homeowners permanently denied relief because their local governments simply will not move the necessary legislation at all.

SunRun has to know this. Their legal and government affairs team is led by Holly Gordon, a former Stanford University law professor. At a recent solar energy conference, I asked Ms. Gordon if SunRun has been working to undermine PACE. Suffice to say she didn't appreciate the question:

SunRun's management team could, like many solar companies, see it as in their interest to promote to shared interest of the solar industry. Instead they are said to be acting to subvert that shared interest in order to benefit themselves in the short run. Eliminating or weakening the competition -- in this case PACE -- is just business.

As the solar industry matures it will become critical for the solar industry to maintain one of its strongest assets: its relatively tight cohesion and shared mission to keep solar's scaling potential strong.

The solar community remains small, but it is growing rapidly. As it grows, those in it for all the right reasons should spend some time thinking about how they are going to keep rogue actors from undercutting the industry.

For now, sunlight (of a different sort) and public shame may be the best medicine.

UPDATE: As this story goes to press, I note that Eric Wesoff at GreenTechMedia has a response from SunRun. The key graf:

"SunRun supports consumer choice and knows including third-party owners in PACE can reduce loan and lien amounts by more than 30 percent for the same solar facility, while providing reduced risk and greater customer service for homeowners. Nevertheless, we will withdraw this proposed amendment because industry infighting over the proper PACE strategy has become a distraction to operating our business and delivering on our mission."

One can speculate that SunRun's response may have had something to do with the video included in this post, but since the email exchange is undated, nothing should be assumed. When I reached Edward Fenster, SunRun's CEO, just a few minutes ago, he declined substantive comment, saying he did not have time to speak right then. He directed me to what I'm guessing is his PR department, but I had called at noon, and I wouldn't be surprised if the person I reached was at lunch. At any rate, I will update this post again with any response from SunRun.

In the meantime, I contacted an industry insider who spoke on background because of business considerations. According to this person, the damage done by SunRun is toothpaste that cannot be put back in the tube. He welcomes the fact that they are withdrawing the amendment, but laments that PACE is already hobbled. Intentionally or not, this person says, SunRun's advocacy aligned perfectly with that of the utility and coal industry and amounted to SunRun running interference on their behalf. That cannot be taken back. The insider concludes, "The thought that a solar company would undermine the PACE program is very disturbing."

 

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