Businesses frequently run into challenges when they look to upgrade to more efficient and environmentally friendly HVAC equipment. Namely, the new systems can be really expensive to purchase and the payoff for the investment can take years.
But a newly-formed initiative in Southwest Michigan aims to change that.
The Property Assessed Clean Energy (PACE) initiative, which was approved by the Kalamazoo County Board of Commissioners in early April, acts as a financing mechanism for commercial building owners to upgrade energy-using equipment, anything from HVAC systems to solar panels to lighting.
“There is basically this huge problem in the U.S. and really throughout the world with commercial and industrial properties. Utilities cost a lot of money, especially when you’re talking about a building stock that could be 20-, 30- or 40-years-old on average,” said Kyle Peczynski, clean energy project manager at Levin Energy Partners LLC. The Southfield-based company administers the PACE program throughout the state and in Kalamazoo County.
The statewide PACE program — dubbed “Lean and Green Michigan” — must be adopted by a county, city or township governing body, but all financing for PACE projects is done through the private sector, meaning taxpayers aren’t left on the hook.
With the approval of its initiative, Kalamazoo County becomes the 12th county in Michigan to implement the PACE program. Five cities have also implemented it, mostly in suburban Detroit. Calhoun County and Muskegon County are currently exploring creating PACE districts, sources said.
That PACE costs taxpayers nothing while providing seemingly significant economic benefits for sustainable development separates the program from other green economy initiatives, sources said.
“It’s a tool that doesn’t cost taxpayers any money so the question is, ‘Why not (implement PACE)?’” said John Taylor, a Kalamazoo County commissioner. “It’s a win-win for everybody.”
RESPONDING TO NEED
For Bill Rose, president and CEO of the Kalamazoo Nature Center, the PACE program is “too good to be true, but it is true.”
Approximately 18 months ago, the Nature Center called on area residents and stakeholders to identify areas where they could take action to combat climate change. Many in the business community expressed a desire to upgrade equipment in their facilities, including HVAC systems, and they said they’d like to switch from traditional incandescent light bulbs to more efficient LEDs.
The problem, multiple sources said, is that the investment in these upgrades is significant and while they do eventually pay off, it can take as long as 10 to 20 years. That long payoff period can make it difficult to obtain traditional bank financing for such projects.
“For most companies, spending several million dollars for something that won’t pay for itself for 10 or 12 years down the road just doesn’t really get very far among leadership,” Peczynski said. “Moreover, if you say, ‘OK, let’s finance these projects,’ usually if you go to a traditional bank, they will give you three- or five-year money. Anything beyond that may be a floating rate or unfavorable terms. It doesn’t help these types of projects pencil out.”
PACE can be used by any commercial property owner, meaning that industrial, retail and multifamily landlords can all take advantage of the financing mechanism. Single-family homes and government buildings cannot utilize it, although there have been exceptions to that rule.
Last fall when the Michigan Public Service Commission (MPSC) moved to a new office in Lansing, the building’s landlord agreed to finance $488,000 in improvements that included LED lighting and a 20-kilowatt solar array, according to a statement the MPSC released last November. The landlord, Saginaw Plaza Ltd., obtained a 20-year fixed-interest-rate loan for the improvements.
Sources indicated that a number of companies in the Kalamazoo-area are already looking at making use of the program, but they were not willing to comment as this story was going to press.
While individual cities or townships can initiate a PACE program, it tends to be most effective when enacted at the county level because it is easier to scale, Rose told MiBiz. It would make the process more difficult to use, for example, if the city of Kalamazoo created a PACE district but Portage did not.
The 16 governing bodies that have created PACE districts total more than 4.7 million Michigan residents, or 48 percent of the state, according to data from Levin Energy Partners.
It is unclear how many other counties or municipalities around the state may be looking to implement their own districts. But Curt Monhart, vice president of sales and marketing at Ann Arbor-based Energy Alliance Group of Michigan LLC, an organization that provides energy audits for businesses, said that “what we are seeing is that each successive county is getting through the process faster than the previous one.”
While PACE remains in its infancy in Kalamazoo, the Kalamazoo Nature Center’s Rose is not surprised that it is gaining in popularity, considering the advantages of the program.
“(A business) increases cash flow, does good for the environment and makes upgrades to their business,” Rose said.