Most electrification projects that stall do not stall on engineering. They stall on a capital request for equipment that pays back over twelve years in a building the owner expects to sell in five. Commercial Property Assessed Clean Energy financing addresses that mismatch: a qualifying project can be financed in full and repaid through a property tax assessment that stays with the building when it changes hands unless the seller pays it off.
For a heat pump water heating system with thermal storage, C-PACE changes the question from whether the owner can fund the project to whether the project's savings cover its assessment—a question the engineering can answer.
C-PACE is available in states with enabling legislation and an active program. The DOE Better Buildings Financing Navigator describes it as covering 100 percent of project cost with 10 to 20 year terms not exceeding the equipment's useful life, repaid as a property tax assessment secured by a lien senior to most other property debt, with mortgage lender consent usually required.
Programs differ in which measures qualify, whether a savings-to-investment ratio must be met, and whether new construction is eligible. The program rules, not the technology, decide whether a storage tank is financed as part of the water heating measure.
Key Takeaways
In this article
What C-PACE is
The DOE Better Buildings Financing Navigator defines commercial PACE as a structure in which building owners borrow money for energy reduction, onsite generation or other projects and repay it through an assessment added to the property tax bill.
The parties are a program administrator, the local government that collects the assessment, a contractor or energy services company, the owner, and a capital provider. The capital provider may be a specialty PACE lender, a bank, bondholders or a public entity. The Navigator notes that accounting treatment, on or off balance sheet, is unresolved and should be reviewed with the owner's accountant.
The Navigator reports that 32 states plus the District of Columbia have passed enabling legislation, that residential PACE appeared in 2007 and commercial programs in 2009, and that over $2 billion had been provided to more than 2,400 commercial buildings, with most projects between $75,000 and $750,000.
Its State of the Market section is dated 2017, and the page gives two different state counts in different sections. These are the page's historical figures; the current count should be taken from the program administrator in the state in question.
The Navigator lists these financing mechanics:
Why the structure fits water heating electrification
A central heat pump water heater with thermal storage has four financial characteristics that C-PACE was designed around.
Storage makes the annual savings case work. A heat pump sized for peak recovery needs an electrical service upgrade; a heat pump sized for average load with storage carrying the peak often does not. Demand charge reduction from running the heat pump off-peak is a savings line the SIR calculation can count.
The mechanics are in thermal energy storage for demand charge reduction, and the sizing method is in the central heat pump water heater guide.
What the program rules say about measures
Eligible measures are set by state legislation and program guidelines, and they differ. New York City and Texas illustrate the range.
New York City. The NYC Accelerator PACE Financing program is run by the Mayor's Office of Climate and Environmental Justice, with the New York City Energy Efficiency Corporation as administrator and private capital providers as funders. Its Program Guidelines v4.0, revised June 26, 2026, specify the measures and requirements listed below.
Texas. The Texas PACE Authority, which administers programs for participating local governments, describes TX-PACE as financing energy and water efficiency, resiliency and eligible building improvements for commercial, multifamily, agricultural, industrial and nonprofit property, across new construction, retrofits and retroactive financing. It reports more than $500 million facilitated since 2015.
For a water heating and storage project in New York City, a heat pump water heater is an eligible efficiency measure by name and a retrofit resulting in full electrification is pre-qualified. Whether the storage tank serving that heater is financed as part of the measure or as energy storage is a question for the administrator's technical certification; the guidelines do not answer it by name.
In other programs, the answer sits in the state's enabling statute and the administrator's measure list. Ask before the application, not after.
The following requirements and eligible measures are specific to New York City's Program Guidelines v4.0:
The savings-to-investment test and where storage enters it
Where a program requires an SIR, the engineer's job is to show that lifetime savings exceed the financed cost. Every figure below is an assumption chosen to show the structure. This is an illustration, not a financing quote.
Assumed project: replace a gas storage water heating plant in a 120-apartment building with a central heat pump water heater and 2,800 gallons of thermal storage. Assumed installed cost: $600,000 after utility incentives.
Assumed assessment terms: 20-year term at a 7 percent fixed interest rate.
Annual payment factor = 0.07 / (1 − 1.07^−20) = 0.0944
Annual assessment = $600,000 × 0.0944 = $56,600 per year
Total paid over 20 years = $1,133,000
The certification would carry the following savings lines, all assumed:
Fuel: gas cost avoided, less electricity cost added at the heat pump's COP. Thermal kWh delivered to the water is not the electrical kWh purchased; the conversion divides by the COP at the building's entering water and ambient temperatures.
Demand: the kW reduction from charging storage off-peak, valued at the tariff's demand charge. This line exists only because storage lets the heat pump run smaller and at a different hour.
Maintenance: avoided combustion equipment service.
Avoided penalties, where the program counts them: in New York City, projected Local Law 97 penalties that the project avoids.
Assumed savings case: $70,000 per year.
Undiscounted SIR over 20 years = ($70,000 × 20) / $600,000 = 2.33
Annual cash position = $70,000 − $56,600 = $13,400 positive
Assumed savings case: $50,000 per year. The undiscounted SIR is 1.67, the project clears a 1.0 test, and the annual cash position is $6,600 negative. The owner is paying for the asset faster than it pays for itself, which may still be the right decision for a building facing a compliance deadline.
Program administrators calculate SIR with their own discounting and escalation conventions, which this illustration omits. The ROI calculator sets out the savings side in more detail.
Incentives reduce the financed amount, so they belong before the C-PACE application, and most utility programs require pre-approval before purchase. A project that orders equipment, then applies for the utility incentive, then applies for C-PACE has forfeited the first and complicated the second.
Lender consent
The lien that makes C-PACE attractive to capital providers is the reason mortgage holders must agree to it. The LBNL issue brief for DOE's C-PACE Working Group, published July 2023, reports that lender consent is a recurring barrier for administrators and capital providers alike and is easier to obtain for larger projects.
The brief identifies seeking consent as a best practice even where legislation does not require it and recommends that administrators maintain a list of lenders that have consented.
The New York City guidelines require consent from all mortgage and deed-of-trust holders, with cooperative association mortgage holders for co-ops and the fee owner for ground leases.
Three practical consequences follow:
Where C-PACE sits against other capital
The alternatives for a $600,000 water heating project are the owner's own capital, an equipment loan or lease, an energy services agreement, or a utility on-bill program where one exists. C-PACE differs on the four points the DOE Financing Navigator lists below.
The federal Section 48E credit, utility custom and prescriptive programs, and state programs sit alongside C-PACE rather than in place of it, and each has its own sequencing rule.
The incentive stack and its order of operations are set out in utility incentives and rebates for commercial thermal energy storage. Georgia C-PACER specifics are on the Georgia page, and Florida PACE specifics are on the Florida page.
The incentive finder is a starting point for program identification, not a determination of eligibility.
The order of operations
Frequently Asked Questions
What is C-PACE financing?
The DOE Financing Navigator describes a financing structure in which a building owner borrows for a qualifying improvement and repays it as an assessment on the property tax bill, typically over 10 to 20 years and no longer than the equipment's useful life, secured by a lien senior to most other property debt. It is available only in states with enabling legislation and an active program.
Can C-PACE finance a heat pump water heater and thermal storage?
In New York City, the program guidelines name heat pumps and domestic hot water as eligible efficiency measures and energy storage under renewable energy systems. Thermal storage is not named, so whether the tank is financed as part of the water heating measure is a question for the administrator's technical certification. Other programs set their own measure lists. Confirm with the administrator before applying.
Does C-PACE cover 100 percent of the project?
The DOE Financing Navigator states that C-PACE financing can cover 100 percent of project cost. Some programs cap borrowing at a loan-to-value ratio, and the New York City guidelines generally cap new construction and major renovation loans at 35 percent of stabilized loan-to-value.
Is mortgage lender consent required?
Usually. The Navigator says consent is usually required for mortgaged properties, the New York City guidelines require it from all mortgage and deed-of-trust holders, and the LBNL brief calls it a recurring barrier that is easier to clear for larger projects.
What happens if the building is sold?
The DOE Financing Navigator states that the assessment stays with the property and becomes the new owner's obligation unless the seller pays it off before sale.
What is the savings-to-investment ratio?
A test some programs apply requiring projected lifetime savings to exceed the financed cost. New York City requires an SIR of at least 1.0 for retrofits unless the project is pre-qualified, which a full electrification is, and counts avoided Local Law 97 penalties as savings.
How does thermal storage affect the C-PACE case?
It adds a demand charge savings line, because the heat pump can be sized for average load and run off-peak, and it often removes the electrical service upgrade from the project cost. Both improve the savings-to-investment ratio; neither is a determination that the tank itself is an eligible measure.
How long does a C-PACE closing take?
The DOE Financing Navigator lists a typical close time of 3 to 9 months, which is why the audit, the incentive pre-approvals and the lender conversation should start before the equipment is specified.
The bottom line
C-PACE turns a capital request into an assessment the project's savings are meant to cover, over a term matched to the equipment and attached to the building rather than the owner.
For a heat pump water heating project, thermal storage puts a demand charge line in the savings column and often keeps the electrical service upgrade out of the cost column. Both improve the arithmetic of the savings-to-investment test.
Confirm the program's measure list, commission the audit it requires, apply for incentives first, open the lender conversation with the engineer's numbers, and set the term to the equipment's useful life. The structure is well established; the eligibility of any specific tank in any specific program is a question only the administrator can answer.
