Energy efficiency shouldn’t take a back seat during the pandemic, as energy incentives can offer companies a valuable financial lifeline.
TL;DR
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The Ohio Air Quality Development Agency allows business to issue their debts via the agency for related projects.
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Tax abatement can help ease financial costs from upgrade projects, especially those that increase property value.
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Property Assessed Clean Energy (PACE) programs build costs into property taxes over the long term, and can even be used retroactively, freeing up capital spent previously for use now.
COVID-19 has not only orchestrated a concerted assault on the health of Ohio’s residents, the pandemic has also undermined the financial health of many Buckeye state businesses. Faced with closures, lower sales, and supply chain disruptions, many companies are teetering on the edge of the fiscal precipice.
In such circumstances, businesses can be forgiven for thinking that investing in energy efficiency projects is not only infeasible but downright counter-productive.
This is why you may be surprised to learn that several energy programs and incentives have helped businesses access capital, providing much needed financial lifelines. In this article we will be looking at two sources – the Ohio Air Quality Development Agency (OAQDA) & PACE loans – of capital that businesses can draw from during these trying times.
Ohio Air Quality Development Agency
The OAQDA helps improve Ohio’s air quality by helping businesses finance and construct/install air quality facilities. Specifically, the body “allows private businesses to issue their debts through our agency for projects that are aligned with our purpose,” explains executive director Christine O’Keeffe.
In 2019, the OAQDA issued $450 million in air quality revenue bonds across 29 projects in 2019, and while these numbers are expected to be smaller in 2020, the organization continues to call on businesses interested in energy efficiency.
OAQDA’s work has taken on a new dimension during the pandemic as its project financing is helping companies cut emissions while also accessing capital to better navigate the economic depression. Yet another issue is the fallout from House Bill 6, which eliminated the state’s utility efficiency requirements.
This means that OAQDA is now also trying to maintain momentum in Ohio’s energy efficiency sector.
One example of the kinds of projects that can benefit from OAQDA assistance is the property of Alterra Real Estate Advisors in Columbus, which garnered $2 million in financing for a suite of efficiency upgrades.
New HVAC units were installed, together with LED lighting retrofits, a new roof, solar panels, and building automation. As a result, the company is expecting to benefit from annual energy savings of $62,500.
Some projects can also take advantage of tax abatement which is an “[…] excellent tool to make these expenditures feasible […] Air quality has become even more important due to COVID,” says Alterra president, Brad Kitchen. Depending on local rules about rises in property taxes in your area, businesses can also benefit from property tax abatement if the overall project is already increasing property values.
This means that the air quality portion is excluded from tax assessments, which lowers financial burdens. Furthermore, equipment purchases are (generally) exempt from sales and use tax, which statewide in Ohio is 5.75%: some local governments charge more.
Help your company hits its stride with PACE
Companies interested in seeking OAQDA funding should know that some projects can double up and also benefit from PACE (like Alterra did). PACE stands for ‘property assessed clean energy’, and it builds capital costs and interest for clean energy improvements into property tax payments over a long period (15-25 years) of time.
This means the obligation to pay off the loan is attached to the property and can be transferable if the property switches hands before all payments have been made.
“The OAQDA PACE program allows us to select when we want the payments to start, and the real estate tax abatement and energy savings helped offset costs which made the project feasible without increasing the operating expenses,” Kitchen said.
Another project the OAQDA approved in 2020 was $1.5 million in financing for the energy portion of the conversion of a former warehouse and ice cream factory into a wedding and conference venue in Dayton, Ohio.
PACE financing can apply to any type of property, be it commercial, non-profit, retail, industrial, or multi-family. PACE provides 100% of the financing for clean energy projects, with repayments windows of up to 25 years and no down payment. Some accountants also suggest giving PACE off-balance sheet treatment, since repayment is tied to the land, not the business.
The biggest boon for struggling, pandemic-battered businesses is that PACE financing can be used retroactively.
These are all great selling points, but perhaps the largest boon for struggling, pandemic-battered businesses is that PACE financing can be used retroactively. In most of the two dozen states that offer PACE financing, companies can apply for funding on previously completed projects.
Existing projects must be completed and already paid for, and be certified that they meet PACE guidelines by a 3rd party engineering firm. Any PACE loan that is then approved is tied to the remaining useful life of the equipment in question.
PACE retroactivity allows companies (sort of like remortgaging your house) to access much-needed capital during the pandemic and reap the benefits of having proactively invested in clean energy in previous years. “Retroactivity is still a well-kept secret in PACE,” explains Jessica Bailey, CEO of Greenworks Lending, one of the largest PACE financing providers in the U.S.
“We didn’t realize how widely it could be used until we really dug into it after COVID hit. We’ve definitely begun doing proactive outreach for it. This approach seems to be paying off, as Greenworks has seen a 600% increase in PACE business in 2020.”
Even if you can’t find explicit retroactivity information for your state, it is still worth contacting your local PACE organization, according to Bailey. “Some states don’t have [retroactivity] written into their program guidelines, so it’s up to their program administrator there. Most administrators are fine with it as long as the borrower did the qualifying work.”
