This week, Gov. Roy Cooper signed creation of the Commercial Property Assessed Clean Energy (C-PACE) program into law. In a nutshell, local governments would voluntarily join the program, thus allowing commercial property owners in their jurisdiction to borrow from an approved set of lenders to make energy-efficiency and resiliency upgrades to their commercial, industrial, agricultural, nonprofit, and multifamily residential properties. The local government would then impose a property value assessment and lien on of the property until the loan is paid off through property taxes.

Under the new law, the statewide program is sponsored by the North Carolina Department of Commerce and administered by the North Carolina Economic Development Partnership.

Supporters of the program say it is an innovative, low-cost financing option to reduce energy cost and usage for commercial property owners. They also say it will better harden the state’s energy and commercial infrastructure from natural disasters, like hurricanes. While the C-PACE program holds promise, the potential for problems is a red flag. In states with similar programs property owners have been victims of fraud and scams, so oversight is crucial as the program unfolds.

Economic Advantages

One of the standout features of the C-PACE program is property owners’ access to capital for significant energy upgrades. Traditionally, the high upfront costs associated with energy-efficiency and renewable-energy projects have deterred property owners. C-PACE addresses this challenge by allowing property owners to finance these improvements over an extended period, typically up to 20 years. This financing is repaid through an assessment tied to the property, not the individual owner, thereby reducing the immediate financial burden and spreading the cost over a longer timeframe. However, there are concerns over skyrocketing property taxes hamstringing owners.

Supporters also argue that the demand for energy-efficient technologies and renewable-energy projects spurred by a new financing mechanism will in turn create jobs in the local economy. They predict that as properties become more efficient, operating costs decrease and the property values will increase, making them more attractive to tenants and investors.

Environmental Impact

The program, outlined in legislation sponsored by Republican lawmakers, also fits neatly into Cooper’s primary agenda of developing North Carolina’s “green energy” economy, while using the property owners’ money to do it. The only appropriation in the bill is $50,000 from the state’s General Fund to the Department of Commerce to pay for EDPNC to develop the C-PACE Toolkit. The vision is that, as more commercial properties undertake these improvements, the collective impact will lead to a substantial reduction in energy consumption and a cleaner environment.

“What I don’t quite get is why there needs to be a government program at all, if it’s not going to involve any public money and will only involve financing arrangements between private lenders and corporations,” said Jon Sanders, director of the Center for Food, Power, and Life, at the John Locke Foundation. “It makes me worry that at some point in the future it could be converted into a government program. Either that, or it’s a way for politicians to take credit for what the private sector is doing.”

Implementation Challenges and Potential for Fraud

The C-PACE program’s financing model can also make it a target for fraud and scams.

There have been reports in other states with C-PACE programs that predatory solar panel companies have misled homeowners, not fully informing them of the long-term costs and potential lack of energy savings. These sales tactics often promise no upfront payments and substantial savings, but they fail to assess whether the energy savings will actually cover the costs. This can lead to situations where property owners find themselves burdened with higher property taxes and unsellable properties due to the lien attached.

Los Angeles County ended its C-PACE program in 2020 after just five years following rampant scams. There, unscrupulous actors lured property owners with promises of significant energy savings and no upfront costs, only to leave them with underperforming upgrades and higher property-tax assessments. Homeowners said they were told it was a free government program but ended up with huge tax bills they could not afford. In March, LA County settled a homeowner’s lawsuit for $12 million.

The success of North Carolina’s C-PACE program will depend on meticulous oversight and constant communication with local governments and property owners so that the responsibilities and costs are understood by all. For example, if the financed improvement is adding solar panels to a building, property owners deserve a fair estimate of energy cost savings, if any, and to understand that increased property taxes and the panels’ maintenance will be their responsibility. To protect North Carolina property owners, processes should be in place to vet contractors and closely monitor assessments and liens.

EDPNC’s toolkit, along with a robust administrative framework, is essential to maintain outreach and education efforts throughout the life of the program. Collaboration between state and local governments, financial institutions, and stakeholders in the real estate and energy sectors will be key to creating a trustworthy system that delivers on the early promises.