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Solar finance shop inks largest-ever PACE deal for Calif. commercial-scale project

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

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Solar finance shop inks largest-ever PACE deal for Calif. commercial-scale project

CleanFundCommercial PACE Capital Inc. is providing $10 million in financing for a 5-MWCalifornia solar installation, making it the largest such project to befinanced using a property assessed clean energy, or PACE, framework.

The5-MW solar project will be developed by Borrego Solar Systems at the Madera, Calif., facilitiesof Pacific Ethanol Inc., a producer and marketer of renewable fuels across theU.S.

PacificEthanol will repay its financing from CleanFund as a line item on its propertytax bill under the PACE model, which qualifies the renewable energy project asa commercial-level building upgrade.

Thefacility is expected to be completed by the end of 2018, pendinginterconnection agreements with local utility , and willsave Pacific Ethanol as much as $1 million annually in electricity costs, thecompany said.

Thosesavings, in conjunction with some of the financing benefits associated withadding to the collateral of the initial property loan, as well as certain taxequity opportunities, could make PACE an attractive option for investors tiringof traditional power purchase agreement or lease-based financing models, particularlyin the commercial and industrial, or C&I, and community solar markets.

"Manyreal estate developers are finding the PACE financing comes as very useful asthey develop properties and lower their cost of capital, because they might usePACE capital instead, and we are seen as a source of displacement of thatcapital they might be using otherwise," CleanFund CEO Greg Saunders saidin an interview.

Saunderssays the $10 million project with Pacific Ethanol is just the first in a seriesof tentative PACE transactions for CleanFund, which has a pipeline of dealsthat includes one project that could top $40 million.

Thecapital behind the PACE model administered by CleanFund could ramp up in theyears ahead, if institutional investors become more familiar with and perhapskeener to recognize the benefits of PACE at the C&I level.

"Institutionalinvestors are stuck in this old model in solar energy financing where the focusis on the system as the collateral, and there is all this rigor aroundindependent engineers, monitoring and surveillance, but when PACE enters thepicture, we can switch the credit profile to the real estate itself and itbecomes a whole different paradigm," Saunders said.

Growthin PACE financing around commercial and industrial solar projects appears mostlikely to occur in California and Connecticut, Saunders said, given favorableand well-rooted policies. Overall, 33 states and the District of Columbia haveadopted PACE financing frameworks, meaning that a wide swath of the U.S. solarmarket could opt to scale up the model if more capital arrives, includingupstart solar markets in Colorado, Florida, Minnesota, Texas and Utah.

"Ittends to be less expensive than equity financing or mezzanine debt,"Saunders said. "Lenders like the value we help by adding collateral totheir own loan, but also helping them upgrade the building, and reducingexpenses by lowering the utility bill."