Mass clean-energy financing program expanded to new buildings

August 14, 2023 : Boston Business Journal, Greg Ryan

MassDevelopment has expanded a financing program for energy upgrades in commercial buildings in hopes of giving a jolt to the little-used initiative.

The agency debuted the Property Assessed Clean Energy, or PACE, program in 2020. PACE is for projects at commercial and multifamily sites that cut energy use, such as solar panels or new HVAC systems. The financing comes from private-sector lenders but takes the form of an assessment or lien on a property that is repaid, via a tax surcharge, over a period as long as 20 years. That enables owners to borrow money without adding debt to their balance sheets.

In the past three years, however, only three Massachusetts properties have taken advantage of PACE: two industrial buildings in East Boston and an office building in Greenfield.

Unlike in other states, the Massachusetts program has been limited to existing buildings. MassDevelopment recently changed PACE to include new construction as well, after the Legislature enabled the agency to do so through an economic development bill last year.

To date, the program has been hurt by the jump in interest rates and banks’ growing conservatism, which have pushed property owners to delay building retrofits, according to Wendy O’Malley, MassDevelopment’s senior vice president of green finance.

The rule change opens up PACE to what O’Malley believes will be an important customer base: real estate developers who want to build in the nearly 20 cities and towns — including Boston, Cambridge and Somerville — that have adopted the specialized stretch energy code, sometimes called the “net zero” code. The new code is meant to limit greenhouse gas emissions, though it can lead to higher upfront costs for construction.

“PACE will help property owners and developers fund the potential increased cost for their project,” O’Malley said.

While just three Massachusetts projects have used PACE so far, similar programs have seen more action in other states, and “we’re fielding a dozen calls a week from either lenders, developers or owners, inquiring about whether they’re eligible,” O’Malley said.

To participate in PACE, a project’s city or town must have affirmatively opted into the program. At this point, almost 70 municipalities have done so, including roughly half the communities that have adopted the net zero code, according to MassDevelopment.

Affordable-housing projects will one day be able to tap the state’s new climate bank for a similar purpose, though that program is still under development and is expected to use other types of financing, potentially including loan-loss reserves.