In recent weeks the clean power financing program known as PACE, (Property Assessed Clean Energy), has been falling to pieces. Earlier this month mortgage gorillas Fannie Mae and Freddie Mac vetoed the program and soon after the Federal Housing Finance Agency endorsed the mortgage companies’ position. Now the situations has already knee-capped innovative startups looking to use PACE to boost clean energy and energy efficiency deployments.
That’s the case for GreenDoor, an 18-month-old startup that had developed a software platform and websites for administrators to run PACE programs. Alex Robinson, GreenDoor founder and CEO sent out an email to his partners last week explaining that the PACE ruling was the nail in the coffin of his company’s plans.
This ruling, unfortunately, spells the end for GreenDoor’s original vision. As many of you have heard from me in previous emails, this outcome is not a surprise and is something we have spent the last two months planning for. However, the ruling is far more definitive than we—and most in the industry—had expected.
Robinson, who started the company after he graduated from Stanford business school, told me in a phone call today that the company already had 3 customers for its software platform and that it was in the middle of raising its first outside investment round when the FHFA first indicated that it wouldn’t support PACE. Robinson decided to not take the investment, a decision he says he is happy with in light of the most recent set backs for PACE. Robinson is still considering whether or not he wants to push the company in another direction.
GreenDoor is one of a variety of startups that have been betting that PACE programs will provide a major boost to residential clean power and energy efficiency projects and could also act as a platform for innovation. The Wall Street Journal has reported that PACE programs could help drive up to “$1 billion in new projects and create up to 20,600 jobs in the construction industry.”
PACE programs work when local governments make loans to home owners to install an energy system (often rooftop solar panels), and the homeowner can repay the loan over 20 years via a property tax assessment that stays with the house even if it’s sold. The idea behind PACE was developed back in 2007 by Cisco DeVries, who at the time was the Berkeley, Calif. Mayor’s Chief of Staff. The city of Berkeley was the first to support the program.
DeVries is now the President of Renewable Funding, a startup which provides services for cities and counties that want to create PACE programs, and which is backed by Draper Fisher Jurvetson, NGEN Partners, and New Cycle Capital.
The most confusing part for entrepreneurs and investors that have been looking to tap into PACE is that PACE has also been widely endorsed by the federal, state and local governments. President Obama allocated $150 million in funding from the stimulus package for energy upgrades for residential homes via PACE programs.
But opportunities are drying up now that the mortgage giants say they won’t accept loans that have taken advantage of PACE programs (they say tax payers will shoulder the burden of defaulted loans that have used PACE).
When San Francisco had to suspended its PACE program earlier this year, the New York Times reported that local efficiency retrofitting startup Recurve was forced to temporarily lay off workers, and “lost almost a quarter of a million dollars’ worth of projects overnight,” according to Matt Golden, Recurve’s president.
For some of the much smaller companies like Robinson’s GreenDoor, that type of loss just isn’t sustainable:
Though PACE enjoys widespread political support and has a decent chance of eventually emerging from this period of uncertainty, in my judgment this represents a business risk that, in present form, is too great to bear.
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