Local Option - Clean Energy Financing

Last updated: August 24, 2020

Program Overview

Implementing Sector:State
Category:Financial Incentive
Incentive Type:PACE Financing
Administrator:Programs administered locally
Start Date:07/01/2010
Eligible Efficiency Technologies:Other EE
Terms:Locally determined


Name:Va. Code § 15.2-958.3
Date Enacted:3/30/2009
Name:S.B. 110
Date Enacted:03/11/2010
Effective Date:07/01/2010
Name:S 801


Local Option - Clean Energy Financing

NOTE: In 2010, the Federal Housing Finance Agency (FHFA), which has authority over mortgage underwriters Fannie Mae and Freddie Mac, directed these enterprises against purchasing mortgages of homes with a PACE lien due to its senior status above a mortgage. Most residential PACE activities subsided following this directive; however, some residential PACE programs are now operating with loan loss reserve funds, appropriate disclosures, or other protections meant to address FHFA's concerns. Commercial PACE programs were not directly affected by FHFA’s actions, as Fannie Mae and Freddie Mac do not underwrite commercial mortgages. Visit PACENow for more information about PACE financing and a comprehensive list of all PACE programs across the country.

Property-Assessed Clean Energy (PACE) financing effectively allows property owners to borrow money to pay for energy improvements. The amount borrowed is typically repaid via a special assessment on the property over the years. Virginia has authorized certain local governments to establish such programs, as described below. (Not all local governments in Virginia offer PACE financing; contact your local government to find out if it has established a PACE financing program.)

Virginia passed legislation in 2009 authorizing local governments to establish a loan program to provide financing for clean energy improvements to property owners via local ordinance. Loans can be offered for financing renewable energy production and distribution facilities, energy efficiency improvement, or water usage efficiency improvements. Governments that opt to establish a program must hold a public hearing to solicit feedback on the draft ordinance/plan. Within the final ordinance, local governments must specify which "clean energy improvements" would be covered, they must determine funding sources, establish interest rates and loan terms.  Also, within the ordinance, the local government must determine the method for collecting the loan repayment, either via water or sewer bills, real property tax assessments, or other billing methods. SB 801 passed in 2015 authorizes local governments to contract a third party to administer the loan program.

SB 801 (2015) tries to address the FHFAs concern by authorizing to place a voluntary special assessment lien for the amount of the loan. The locality may bundle loans and transfer them to a private financial institution, without impacting the lien. Voluntary special assessment lien shall only have priority over previously recorded mortgage or deed if i)written subordination agreement is acceptable is to the lienholder, ii) property owner is current on payments on loans and is not insolvent, and iii) the title of the benefitted property is not in dispute. 

Department of Mines, Minerals, and Energy (DMME) shall develop statewide financial underwriting guidelines for loans no later than December 1, 2015. 

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