Clean energy transition: new financial instruments (PPA and PACE)

Julia A. Graf
4 min readJan 31, 2022


What are Power Purchase Agreements and Property Assessed Clean Energy about?

Capital allocation and financial instruments are necessary to help accelerate the transition to energy efficiency and clean energy. New financial instruments help create new markets and enable the adoption of new technologies at scale, where these markets and technologies did not exist just a few decades ago. The term “energy efficiency financing” refers to debt or debt-like products that support the installation of energy efficiency measures with little or no upfront investment and allow costs to be spread over time. Different financing options are suited for different types of markets such as consumer, community development, municipal, commercial, and institutional use. However, not all programs are equal when it comes to creating impact. We will look at the two such financial instruments — Power Purchase Agreement (PPA) and Property Assessed Clean Energy (PACE) — and discuss their roles in the development of renewable energy markets.

Power Purchase Agreement (PPA) is a newer financial mechanism introduced in 2006 that quickly gained market popularity within the following years. By 2015, PPA was responsible for 10.2 million MWh in contracting green power sales with more than 5 million MWh added that year alone, accounting for 13% of total 2015 green power sales[1] (NREL: “Status and Trends in the US Voluntary Green Power Market,” 2015). These numbers demonstrate the increasing importance of this financial instrument and its significant impact on scaling the green markets.

Source: US Department of Energy — Power Purchase Agreement[2]

As an example, growth in corporate PPAs has been led by global technology groups seeking to cover growing power demand from data centers (see figure: Energy forecast). In 2017, Google’s Alphabet purchased $3 billion of project investments making the tech giant the biggest corporate buyer of renewable power in the US.[3] Other companies followed the suit driving a high PPA demand in the country and globally. Corporations brought 18% more clean energy in 2020 compared to the year before, with Amazon and Total leading the global energy transition (PV Tech: “Amazon and Total help boost renewable corporate PPA growth as volumes jump 18%”).[4] During 2020, clean energy contracts were signed by more than 130 corporates, primarily tech companies, oil and gas groups, and automakers (see Figure 2: Top corporate clean energy buyers, 2020). “Progressive PPA terms and global procurement initiatives are creating new opportunities for large and small offtakers in both developed and emerging markets,” according to Reuters Renewables.

Source: Energy Post[5]

Property Assessed Clean Energy (PACE). Under PACE, about $7.3 billion has been lent for residential projects and $2 billion for commercial projects between 2009 and 2020[6] making it one of the fastest-growing types of financing in the US. PACE loans typically require no down payment, and the debt is added to property-tax bills as an assessment for real-estate properties. Unfortunately, this financing approach is not well understood by consumers and has become a subject of many controversies. Some of the property owners are caught by surprise as in the case with Ms. White, whose annual property taxes soared to $6,500 from $1,215, after she agreed to make home improvements to help with energy conservation, according to the WSJ (“America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis.” WSJ).[7] While a good idea, in theory, PACE has some serious flaws related to managing property owner expectations and ensuring the integrity of the program used by PACE lenders and general contractors. Renovate America, the largest provider of PACE loans in the country, recently lost its PACE license for fraudulent business practices and for misleading homeowners about how the financing is to be paid back. ( “The FBI is reportedly looking into practices of largest lender of PACE home-improvement loans.”)[8] “DFPI continues to investigate fraudulent practices in the PACE financial area,” according to the Department of Financial Protection and Innovation.[9] In addition, while PACE-sponsored home improvements are designed to reduce energy use, there is no reliable mechanism for verifying whether these goals are achieved. While this program can still be a good option for new developments and even for upgrades of existing buildings, property owners should consider alternative financing approaches to make their homes more energy-efficient.

[1] Eric O’Shaughnessy, Chang Liu, and Jenny Heeter “Status and Trends in the U.S. Voluntary Green Power Market (2015 Data)” (PDF)

[2] DoE Better Buildings “What is a power purchase agreement

[3] Reuters “Data center demand juggernaut creates new solar, wind openings

[4] Edith Hancock “Amazon and Total help boost renewable corporate PPA growth as volumes jump 18%” (PV Tech, January 27, 2021)

[5] Sean Ratka and Francisco Boshell. “The nexus between data centres, efficiency and renewables: a role model for the energy transition” (Energy Post, 2020)

[6] PACE Nation: “PACE Market Data

[7] The WSJ “Americas Fastest Growing Loan Category Has Eerie Echoes of Subprime Crisis

[8] Los Angeles Times: “The FBI is reportedly looking into practices of largest lender of PACE home-improvement loans

[9] DFPI: “DFPI Moves to Revoke PACE Administrator’s License After Finding Its Solicitor Defrauded Homeowners” (2021)



Julia A. Graf

Executive, climate strategist, impact investor, and champion for a sustainable future.