PACE program solar panels: Are they the right option for you?
Updated
PACE programs are an option for financing solar panels and other home improvement projects.
It’s currently available to homeowners if you live in California, Florida, or Missouri.
If you live in one of these states, you may already know someone who used PACE to install solar panels on their home.
So how does it all work? What are PACE programs, who is eligible, and - most importantly - is it a good way to buy solar panels?
Read this guide on PACE solar financing to find out.
PACE solar financing at a glance
- PACE programs offer financing for green property upgrades, including solar panel systems.
- PACE financing for home solar systems is only available in California, Florida and Missouri.
- PACE programs work differently from standard solar loans, and come with their own pros and cons.
- To check if PACE financing is right for you, calculate your savings, compare financing options, and shop around.
What is PACE?
PACE stands for Property Assessed Clean Energy. PACE programs offer financing for energy efficiency, renewable energy, and water efficiency upgrades to the property. The types of projects covered include solar panels, heating and cooling equipment, insulation, efficient windows, landscaping, and more.
PACE loans have some interesting features: they are long-term, require no money down, and have relaxed eligibility criteria. The loan is attached to the property, and not the borrower. Repayments are made through the property tax bill.
Using PACE financing for solar panels is a popular choice. Because home solar panel systems offer big financial savings, they allow for PACE-financed projects that are cash flow positive from year one.
In other words, assuming you have a suitable home, a solar installation can immediately reduce your electricity bill by more than your annual PACE assessment.
Where is PACE financing for solar available?
PACE programs can only be used to buy residential solar panels in the following three states:
These are the only states which currently have active residential PACE programs (R-PACE). Without an active R-PACE program where you live, it is impossible to use PACE for solar panels.
If you’re interested in using PACE financing for a solar panel installation, a local solar company can help you help out. They can present you with options, and process the paperwork.
See the best solar companies in your area.
PACE for solar panels: Features, pros, and cons
When it comes to its basic features, using PACE financing for solar panels looks a lot like taking out a solar loan.
Residential PACE programs offer amounts of between $5,000 to $100,000. The average PACE financing arrangement falls towards the lower end, at about $25,000 each.
This is more than enough to cover a home solar panel installation, which typically runs between $15,000 and $25,000. See solar panel cost data.
PACE financing is generally offered at fixed interest rates of around 6.5 - 9.0%.
Repayment schedules are flexible, depending on the size of the project as well as its functional life. The timeframe for repayments is usually 5 to 20 years long, but can even be as long as 30 years.
Let’s now dig a little deeper and see what the pros and cons of PACE financing are.
Pros
- Debt tied to property, not borrower: This is the biggest difference between a PACE loan and a mortgage or home-equity-based loan. A PACE loan becomes part of the property assessment and is repaid through property tax bills. It functions as a property lien; this means that loan repayments transfer with the home when it is sold. The new owner then becomes responsible for the remaining repayments.
- Low, fixed interest rates: PACE financing terms are generally quite attractive, offering fixed interest rates of roughly 6.5 - 9.0%. This makes PACE much more attractive than financing options like credit cards and unsecured personal loans. Furthermore, fixed rates are good protection against possible interest rate hikes.
- No money down: PACE loans offer up to 100% financing. This means that you can complete your home improvement project with no money down and $0 in upfront costs. This is helpful for homeowners who don’t have spare cash on hand.
- Easy to get: PACE loans are easy to qualify for. You can receive a PACE loan even with a poor credit score. You do, however, have to be up-to-date on mortgage payments, and can’t have declared bankruptcy within the last 2-3 years.
Cons
Here are the possible downsides to PACE financing that you should consider:
- Senior lien position: PACE obligations are usually senior or first liens, which means that they take priority over mortgage payments. Because of this, lenders who insure mortgages with Freddie Mac and Fannie Mae may refuse mortgages for houses with a PACE lien.
- Higher interest rate than some options: It’s possible to find financing with lower interest rates than offered by PACE programs. A Home Equity Line of Credit (HELOC), for instance, currently charges roughly 4-6% interest.
- Borrowing more than you can repay: In some cases, consumers opt for projects that are not cost-effective and then struggle to make the repayments. This has raised concern among consumer protection advocates.
Before taking any major financial decision, make sure to do your research and seek professional financial advice if needed.
Is PACE financing the same as a loan?
PACE financing is different from a loan.
With PACE financing, by contrast, the borrowed amount is attached directly to the property.
With a loan - whether it be secured (backed by an asset) or unsecured - the borrowed amount remains tied to the borrower themselves.
This key difference aside, PACE financing arrangements are set up a lot like regular loans. They usually have a loan-like structure of repayment, with the borrower required to pay back the principal along with interest.
In fact, because of the similarities, PACE financing is often referred to as “PACE loans” by the media, solar professionals, and consumers. It’s common to see the two terms used interchangeably, including on this website.
Check if you should finance solar panels with PACE
Installing solar panels on your roof can be an effective way to save money and earn a great return on investment.
However, whether or not you stand to save, and by how much, can depend on many factors, including the terms of your financing.
To make sure that buying solar panels PACE financing is a worthwhile option for you, follow these steps:
#1 Calculate how much you will save
Use the solar calculator at the bottom of this section to see a forecast of the costs and savings of solar panels over 25 years. The estimate takes into account your energy needs, the rates offered by your utility, and all applicable incentives and rebates. It will tell you:
- Your estimated monthly cash savings from lower energy bills.
- The total payback you can earn over the life of the solar panels.
You will now have a clear idea of how much money you save with solar panels.
#2 Check your financing options
Compare the terms of PACE financing against other solar financing options, such as a solar loan.
If you qualify, you should be able to get a lower interest rate with a HELOC or home equity loan.
However, if you have a less-than-stellar credit score, or have only built up limited equity on your home, a PACE loan might be easier to get.
#3 Request quotes from highly-rated solar companies
First off, we recommend you only consider local solar installers with high review scores; here’s why.
The next step is to request multiple quotes from the installers you’ve identified. You can also check the quotes against solar panel prices found online.
By shopping around, you’re more likely to get a good deal that matches your needs.
About PACE programs
PACE program model
PACE was pioneered in 2008 in Berkeley, California. It is a financing model that operates through state legislation and local government participation.
What this means is that the state government is responsible for passing enabling legislation to establish a PACE program. It is then up to individual local governments to decide whether or not they want to opt in.
The role of local governments and municipalities here is key. If they choose to participate, they:
- issue municipal bonds to fund the loans
- partner with local companies to administer the program; and
- allow repayment through property tax assessments.
PACE goals
PACE programs are designed to address multiple goals:
- Assist property owners to make sustainable and eco-friendly building improvements. The owner gains financially from energy savings that are greater than the loan repayments, as well as through an increase in the property’s value.
- Reduce carbon emissions by financing initiatives that result in either reduced electricity usage through energy efficiency or by the production of electricity through renewable energy sources.
- Help the local economy by generating jobs in the field of solar installation and green home improvement.
R-PACE and C-PACE
PACE is divided into two subcategories, R-PACE and C-PACE.
R-PACE stands for residential PACE, and it refers to the financing of energy efficiency projects for homes. R-PACE is offered in just three states: California, Florida, and Missouri.
C-PACE, which stands for commercial PACE, is solely for commercial property. C-PACE is much more widespread; there are active C-PACE programs in 28 states plus D.C.
Zeeshan Hyder
SolarReviews Blog Author
Zeeshan is passionate about promoting renewable energy and tackling climate change. He developed these interests while studying at beautiful Middlebury College, Vermont, which has a strong focus on sustainability. He has previously worked in the humanitarian sector — for Doctors Without Borders — and in communications and journalism.