Local Option - Property Assessed Clean Energy Financing

October 07, 2022

Summary

Note: In 2010, the Federal Housing Finance Agency (FHFA), which has authority over mortgage underwriters Fannie Mae and Freddie Mac, directed these enterprises against purchasing mortgages of homes with a PACE lien due to its senior status above a mortgage. Most residential PACE activity subsided following this directive; however, some residential PACE programs are now operating with loan loss reserve funds, appropriate disclosures, or other protections meant to address FHFA's concerns. Commercial PACE programs were not directly affected by FHFA’s actions, as Fannie Mae and Freddie Mac do not underwrite commercial mortgages. Visit PACENow for more information about PACE financing and a comprehensive list of all PACE programs across the country.

Property-Assessed Clean Energy (PACE) financing effectively allows property owners to borrow money from the local government to pay for energy improvements. The amount borrowed is typically repaid via a special assessment on the property over a period of years. New Jersey has authorized local governments to establish such programs, as described below. (Not all local governments in New Jersey offer PACE financing; contact your local government to find out if it has established a PACE financing program.)

New Jersey enacted legislation (S.B. 1406) in January of 2012 authorizing municipalities to develop local renewable energy and energy efficiency financing programs for property owners, upon approval to do so by the Director of Local Government Services within the New Jersey Department of Community Affairs (DCA). The municipality may adopt by ordinance provisions creating a "clean energy special assessment" to be imposed on properties that elect to participate in the program and collected on a quarterly basis. The municipality may also issue bonds to fund the program, or apply to a county improvement authority that issues bonds to do so. The proceeds from the special assessment must be used to repay the bond obligations.

The law generally seems to place the details of a specific local program in the hands of local officials, although as noted above the DCA must approve the individual programs offered by municipalities. There are no specific property owner eligibility limits defined in the law, so presumably a municipality has leeway to limit or not limit the a local program to specific types of properties (e.g., residential, commercial) as it sees fit. Likewise, no specific limits are placed on eligible renewable energy or energy efficiency improvements. However, the law does note that for solar or other renewable energy improvements, the property owner may assign renewable energy credits (RECs) or solar renewable energy credits (SRECs) to the municipality or improvement authority to repay the loan. The DCA is directed to coordinate with the New Jersey Board of Public Utilities (BPU) to ensure that financing made available through the programs furthers the goals of the BPU Office of Clean Energy. The law takes effect 120 days after the enactment (January 17, 2012) but the DCA is permitted to take anticipatory action to implement the law in advance of this date. 

Program Overview

Implementing Sector: State
Category: Financial Incentive
State: New Jersey
Incentive Type: PACE Financing
Web Site:
Administrator:
Start Date:
Eligible Renewable/Other Technologies:
  • Other EE
Terms: Locally determined

Authorities

Name: S.B. 1406
Date Enacted: 01/17/2012
Effective Date: 05/16/2012
Name: N.J. Stat. § 40:56-1.4
Name: N.J. Stat. § 40:56-13.1 et seq.
Name: N.J. Stat. § 40:37A-55

This information is sourced from DSIRE; the most comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States. Established in 1995, DSIRE is operated by the N.C. Clean Energy Technology Center at N.C. State University.