Commercial Property Assessed Clean Energy (C-PACE) financing through MinnPACE continues to be one of the easiests ways for Minnesota business owners to invest in energy efficiency upgrades and renewable energy installations. Now, with the Inflation Reduction Act, investing in solar is more affordable than ever.
How does MinnPACE Financing Work?
In alignment with state legislation, we have joint powers agreements with cities and counties across the State of Minnesota. That means we can work with almost any commercial property owner in the state to finance clean energy investments that are repaid through a voluntary tax assessment. As the program administrator, we work with the city/county to place the tax assessments. Funding, on the other hand, comes from one of three sources:
- TrillionBTU Loan Program (10-year fixed term, up to $1 million)
- Local Credit Unions (up to a 15-year fixed term, up to $1 million)
- National PACE Funders (up to a 20-year fixed term, over $1 million)
Inflation Reduction Act + MinnPACE = Fast Track to a Positive ROI for Solar in 2023
In 2022, Congress passed the $369 billion Inflation Reduction Act (IRA). As a result, commercial buildings owners have access to stable, long-term financial resources that make clean energy projects, including solar, more affordable. To start, the 30% solar tax credit is coming back. Prior to the IRA, these solar tax credits were decreasing and set to expire in 2024.
The IRA also brings new incentives to the table. Commercial solar projects in disadvantaged neighborhoods qualify for an additional 10% credit. Use of domestic-made panels qualify for another 10%. Layer in the flexibility of MinnPACE financing and you’re well on your way to a positive ROI.
To better understand the opportunity, we reached out to energy finance experts to discuss the IRA’s potential impact. Bali Kumar, COO at PACE Loan Group, believes it will “help people build better buildings and incorporate renewable energy.” He expects to see more installations with new construction, instead of projects just being “solar-ready.”
Tricia Baker, senior vice president of strategy and impact at PACE Equity predicts the big winners will come from the solar industry. She also sees opportunities for multifamily housing and industrial businesses that traditionally use a lot of energy.
New Tax Benefits
Jeremy Kalin, Minneapolis attorney and clean energy financing specialist, adds that new provisions have been added for nonprofits. For the first time ever, nonprofits can use solar tax credits without investor partnerships. They will receive a direct payment for 30% of the project’s cost after taxes have been filed. This removes an enormous amount of legal and financial work previously needed to make deals work.
Working Out the Details
Other parts of the law are a touch more obscure and need additional clarification. The 179D Energy Efficient Commercial Building Deduction (179D) allows commercial building owners to take a $1.88 per square foot deduction for constructing energy efficient structures.
The IRA increases that to $5 per square foot and allows building owners to transfer the deduction to engineers, architects, and design contractors when energy is reduced through heating and cooling technology, lighting, hot water systems, and building envelopes.
In conclusion, the devil is in the details and there is more to be worked out. But overall, the bill represents a path forward to reducing carbon emissions and creating healthier and more efficient buildings. “It’s helping the clean energy economy, the economy of the future,” said Kumar. “Anything we can do to stimulate that market, as the nation prepares for that transition to clean energy, is a net positive.”
MinnPACE, managed by the Saint Paul Port Authority, is the primary source for Commercial Property Assessed Clean Energy (C-PACE) financing in the State of Minnesota. As such, we have joint powers agreements with cities and counties across the state, giving us the authority to place the voluntary assessments that are unique to C-PACE. Funds come from multiple sources including our own TrillionBTU loan program, local credit unions, and national PACE funders. Solar continues to be a growing part of our portfolio.
With its unique structure, PACE (Property Assessed Clean Energy) financing allows commercial property owners to invest in energy saving projects with no money down until the following year. Payments are rolled into a special property tax assessment, with cost savings exceeding payment due.
How Does Minnesota PACE Financing Work?
- The local government (city or county) establishes a Joint Powers Agreement with MinnPACE. Click here for a list current Joint Powers Agreements.
- Commercial building owners evaluate and select projects that reduce energy costs.
- MinnPACE provides financing directly to the building owner. In some instances, MinnPACE will secure funding from a third party lender.
- The local government adds the assessment to the tax rolls.
- The building owner pays the assessment for up to 20 years.
What are the Benefits of Minnesota PACE Financing?
- Commercial property owners are able to invest in energy efficiency projects and solar or renewable energy upgrades with no upfront costs.
- Utility savings exceed payment obligations, making investments cash positive for commercial property owners and tenants.
- Payments are rolled into a special tax assessment made payable twice per year as part of the building owner’s property taxes; the first payment is due in May of the following year.
- The program is tax neutral with no financial exposure to cities or counties.
- Energy improving investments promote local jobs.