Illinois recently enacted the Property Assessed Clean Energy Act, Public Act 100-0077, which gives local units of governments (e.g. counties, cities and villages) the authority to establish and administer Property Assessed Clean Energy (PACE) programs. Under a PACE program, certain property owners are able to obtain financing to make energy efficiency-enhancing or renewable energy improvements to their property and repay such financing via periodic assessments against their property. Moreover, new renewable energy systems financed through a PACE program could conceivably qualify to participate in the Illinois Power Agency’s renewable energy credit (REC) procurement program and receive payments for the RECs they produce. The new law sets forth rules for the establishment and administration of PACE programs throughout Illinois.

A local unit of government that elects to establish a PACE program must either administer the PACE program itself or designate a for-profit or a not-for profit entity as PACE program administrator to administer the PACE program on its behalf. Although the local units of government have some freedom to tailor their PACE program to their specific policy objectives, all PACE programs will have the following features:

  • A maximum aggregate annual dollar amount for all financing available under a PACE program;
  • A designated PACE area in which financing is available;
  • A requirement that the term of an assessment not exceed the useful life of the energy project it financed;
  • The record owner of the property subject to a mortgage must obtain written consent form the mortgage holder prior to participating in the PACE program; and
  • A restriction that any assessment must be imposed pursuant to the terms of a recorded assessment contract (between the property owner and the local unit of government) with the record owner of the property to be assessed.

Once a PACE program has been established, eligible record owners of commercial, industrial, non-residential agricultural or multi-family (containing five or more units) residential property may apply for funding. Homeowner’s or condominium associations are not eligible to apply for funding under PACE programs.

Any funding acquired by eligible property owners from a PACE program must be used for (A) the installation or modification of (i) an alternative energy improvement related to charging electric or hybrid vehicles, (ii) an energy efficiency improvement (which is broadly defined) or (iii) a water efficiency improvement; or (B) the acquisition, installation or improvement of a renewable energy system that is affixed to a stabilized existing property (not new construction). A qualifying renewable energy system could include, for example, a roof top solar panel array or underground geothermal system to generate energy for the property. Recipients of funding under a PACE program will repay the principal amount of funding plus interest via assessments against the benefit real property, and any assessment under a PACE program will constitute a lien against the property until paid in full.

Other key features of PACE programs include:

  • Any contractor that will install an improvement must acknowledge in writing that final payment will not be authorized until the property owner has confirmed that the improvement is operating as intended;
  • The amount of an assessment in relation to the greater of the assessed value of the property or the appraised value of the property, as determined by a licensed appraiser, may not exceed 25%;
  • The property must be free and clear of involuntary liens, not be delinquent on any type of assessments, taxes, or private debt encumbering the property, among other things;
  • The local unit of government may issue bonds under the Special Assessment Supplemental Bond and Procedures Act to finance its PACE program; and
  • Any existing mortgage holder on the property must give written consent to the subordination of its interest in the property to the assessment.