Hawai i's Green Workforce A Baseline Assessment December 2010

Green Finance: Innovation Spurs Clean Energy Projects
Obtaining adequate levels of financing can be a major obstacle for property owners seeking to implement
clean energy and/or energy efficiency projects. Institutional investors, however, are generally not well
suited to finance small, disaggregated projects, and are likely to avoid projects with high risks for default. 1
One innovative solution to this size and duration mismatch is the use of Property Assessed Clean Energy
(PACE) bonds, which are legislated in 24 states including Hawaiÿi.
According to a report by researchers at the University of California at Berkeley, “renewable energy
(projects)… generate more jobs per unit of energy delivered than the fossil fuel-based sectors” while
freeing “money otherwise spent on energy cost(s) and redirect(ing) it to stimulate the economy through
additional job creation.” PACE bonds bridge the gap between the needs of prospective property owners
and institutional investors. As illustrated in the model below, a municipality floats PACE bonds that are
purchased by institutional investors seeking bonds backed by property taxes. 2 Property owners obtain a
loan from the municipality to finance a green project, and the loan is later repaid through the assessment of
a special property tax equal to 1/20th of the loan amount plus interest and payable over the following 20
years.
For example, Company X owns a mid-rise commercial building and pays $10,000 per month in utilities.
Company X completes an energy audit and learns that it can save $5,000 per month in utilities by investing
$200,000 in clean energy and energy efficiency (e.g., solar photovoltaic, energy efficient lighting and
HVAC). Company X borrows $200,000 at a 10 percent rate and 20-year term from the County’s PACE
program, allowing it to complete the green retrofit. Company X then repays the loan by making a special
property tax surcharge payment of $1,950 per month. This is a financially prudent investment -- from day
one, Company X realizes a $3,050 monthly return (i.e., $5,000 energy savings minus $1,950 property tax
surcharge).
PACE bonds allow for a scaling-up of clean energy initiatives, and provide a wide array of social,
environmental and financial benefits. From a societal perspective, local governments are able to
stimulate the economy and create new green jobs, moving the state closer to a sustainable energy future.
Environmentally, an expansion in the depth and breadth of clean energy projects will serve to decrease our
dependence on fossil fuels and lower overall carbon emission levels. Financially, property owners realize an
immediate positive return, and institutional investors have access to an asset that provides relatively steady
returns with diminished risk of default.
1 Harvard Business Review, “The HBR List: Breakthrough Ideas for 2010,” January-February, 2010.
2 Max Wei, Shana Patadia, Daniel M. Kammen. “Putting renewable and energy efficiency to work: How many jobs can the clean
energy industry generate in the US?” Energy Policy 38.2 (2010).
36 Hawaiÿi’s Green Workforce: A Baseline Assessment