Texas Eyes PACE Loans to Boost Energy Efficiency

In Texas, where oil lubricates the economy the same way it does pickup trucks, energy consumption is no exception to the state’s everything-is-bigger reputation. The nation’s leading energy producer also uses more energy by far than any other state.

As the state’s population keeps surging, demand is expected to grow, prompting leaders to think about how it will ensure that the lights will stay on.

Now, a diverse coalition, which includes renewable energy advocates, city officials, bankers and others, is racing to institute a plan to increase energy and water efficiency upgrades that supporters say could help Texas improve its conservation record and become a model for other states.

“We’re such a big energy user,” said Kip Averitt, a former Republican state senator who is part of the effort. “That means our opportunity to be efficient is huge as well.”

Supporters acknowledge the challenge of avoiding pitfalls that have tripped up similar efforts elsewhere.

The approach, known as Property Assessed Clean Energy, or PACE, addresses the biggest barrier to efficiency investments: initial costs that can take years to recoup. A law allowing cities and counties to set up programs passed this year with overwhelming support in the Legislature.

PACE allows the owners of commercial and industrial property to use a property tax lien to finance energy efficiency upgrades like solar panels and water recycling systems. PACE programs bill an owner through the lien and forward payments to a private lender. Under a smooth-running program, property owners pay less than what they save on their energy bills. If a property is sold, the new owner would inherit the debt — a rule meant to further reduce the risks of investment.

Tony Bennett, the president of the Texas Association of Manufacturers, said that after scrutinizing PACE, his group was backing the plan. “We don’t like subsidies,” he said. “We don’t like picking winners and losers.” But PACE is different, he said, and it would spur investments that could help his group’s 450 businesses cut costs.

Thirty other states allow similar financing plans, though most apply only to energy, unlike in Texas. Most of the states have stumbled, largely because of the objections of mortgage regulators, who feared that PACE liens would take precedence over mortgages if a homeowner defaulted. And in California, one of few states that has had investment under PACE, observers say, a patchwork of rules across cities has discouraged investors from financing projects statewide.

“We have some baggage to overcome,” said Charlene Heydinger, a lawyer leading the Texas coalition, called Keeping PACE in Texas. But she and her colleagues say they benefit from their state’s late entry to the movement and ability to learn from others’ stumbles.

The coalition is devising what it calls “PACE in a Box,” a model it hopes many of Texas’ 254 counties and more than 1,200 cities will adopt, encouraging consistency in a state that values local power. It plans to unveil the program by the end of the year, and it is raising money to travel and make pitches to local governments.

Many PACE supporters would prefer the program to apply to home upgrades as well. But by focusing solely on commercial and industrial properties, advocates have garnered support from bankers.

In a state where industry guzzles more than half of the energy used and makes up close to 20 percent of all the industrial consumption in the United States, the narrowed focus could have an impact on energy demand.

“The scale here is so much bigger, said Doug Lewin, the executive director of the South-central Partnership for Energy Efficiency as a Resource, based in Austin. “I think Texas could be a leader in energy efficiency.”