Energy SIDs and PACE Financing in Ohio

A Green Strategies Bulletin

Ohio is at the forefront of a movement of national lawmaking known as “Property Assessed Clean Energy” (PACE). Property Assessed Clean Energy (PACE) programs allow financing of energy efficiency and renewable energy improvements using special assessments that secure local government bonds, notes or other obligations that do not require the borrower or the sponsoring local government to pledge its credit. In October 2009, the White House released the PACE Policy Framework and encouraged PACE advocacy groups to encourage states and local governments to adopt pilot PACE programs. Ohio House Bill 1 (HB 1) was passed on July 17, 2009 and Ohio Senate Bill 232 (SB 232) was passed on June 4, 2010. Together, HB 1 and SB 232 expanded Ohio’s Special Improvement District (SID) law to permit assessment-based financing of solar photovoltaic, solar thermal, wind, geothermal, biomass, gasification and energy efficiency improvements through assessment districts known as Energy SIDs.

Energy SIDs

An Energy SID is unlike a traditional SID in that the property included within the Energy SID can be from different parts of a municipality or township and does not have to be contiguous. Also, unlike a traditional SID, an Energy SID requires the consent of 100% of the property owners who will be assessed for the costs of their advanced and renewable energy projects. A property owner who does not want to be involved in an advanced and renewable energy program cannot be compelled to join an Energy SID. In addition, Energy SIDs can finance energy improvement projects over a period of up to 30 years, whereas traditional SIDs were limited to ten-year financings.

Energy SID Improvements

Energy SIDs provide municipalities and townships with the flexibility to offer a full range of advanced and renewable energy options to help reduce the cost of energy to their citizens and property owners. The changes to the SID law introduced some new concepts, including definitions for “energy efficiency improvements” and “customer-generated energy projects.” First, “energy efficiency improvement” is defined broadly to include “technologies, products, and activities that reduce or support the reduction of energy consumption, allow for the reduction in demand, or support the production of clean, renewable energy and that are or will be permanently fixed to real property.”

Second, “customer-generated energy project” is defined to include wind, biomass or gasification facilities for the production of electricity that are designed to have a generating capacity of 250 kilowatts of electricity or less or are intended primarily to offset all or part of the electricity requirements of the facility-owner. The limitations imposed by the definition of “customer-generated energy project” establish that special assessment financing can be utilized for solar photovoltaic, solar thermal, geothermal and energy efficiency improvements regardless of size or whether such improvements are on the customer or utility side of the meter. However, “customer-generated energy projects” can be financed for projects of any size on the customer side of the meter or for projects of up to 250kw on the utility side of the meter.

Energy Efficiency and Peak Demand Requirements

SB 232 provides that for non-mercantile customers, the utility companies may count any efficiency savings or reduction in demand produced by an Energy SID located in the utility’s certified territory toward the utility’s compliance with the energy efficiency and peak demand reduction requirements mandated by Ohio law (see O.R.C. Section 4928.66). However, SB 232 provides that mercantile customers that realize energy efficiency savings or reduction in demand produced by their participation in an Energy SID may elect to commit the savings or reduction to the electric distribution utility in exchange for an exemption from an energy efficiency, cost-recovery mechanism as approved by the PUCO. Unless the mercantile customer agrees, the utility is not able to automatically count the energy savings toward its requirement.

Aggregation of RECs

Energy SIDs were expressly authorized in SB 232 to aggregate renewable energy credits generated by advanced and renewable energy projects in the Energy SID financed by special assessments (upon consent of the owners of the credit) to facilitate negotiation of the sale of those RECs.

 

Federal Tax Credits are Available

Participating property owners in an Energy SID who own a qualifying advanced and renewable energy project may be eligible for a variety of federal tax credits, including federal investment tax credits and federal production tax credits.

Conclusion

Advanced and renewable energy programs carry significant, measurable environmental benefits and may be attractive to Ohio municipalities and townships wishing to attract green businesses or green development or to provide a diverse set of energy options within their communities.