A proposal to bring private lenders more directly into property-assessed clean energy (PACE) programs could open up a new financing option for energy and water efficiency upgrades in Ontario’s commercial and multifamily buildings. The provincial government is seeking input on an approach that would relieve municipalities from the seed capital requirements and administrative complexities that have tended to discourage PACE uptake.
Toronto is the only Ontario municipality that currently offers PACE financing to borrowers in the commercial real estate sector through its High Rise Retrofit Improvement Support (Hi-RIS) program — an initiative that is scoped to multifamily rental buildings that are at least 20 years old with a minimum of three storeys and seven units. Qualifying borrowers can obtain low-cost loans, which they repay via a special assessment added to their property tax bills. (Toronto also has a parallel program for residential ratepayers.)
This approach to PACE is enabled through provincial legislation. Both the Municipal Act and City of Toronto Act allow local governments to establish loan programs, authorized through a bylaw, to assist their property tax ratepayers in financing activities that meet the definition of “local improvements” tied to energy efficiency or renewable energy. However, it’s a mechanism that essentially requires adopters to be bankers, supplying the upfront funding, negotiating and administering loans. In Toronto’s case, the effort was launched with $20 million — split 50/50 between the Hi-RIS and single-family residential loan programs — in 2014.
“Toronto is somewhat unique in size and the resources that it has available. Many cities haven’t wanted to take on the debt to do this, and they lack the administrative capability and staffing levels to run such a program,” observes Bryan Purcell, vice president, policy, with The Atmospheric Fund (TAF), a regional agency that supports climate-related programs in the Greater Toronto and Hamilton Area. “In the arrangement the Province is looking at, the money wouldn’t be coming from municipalities. They’d essentially act as a payment facilitator and provide a kind of backstop security for the loan.”
The proposal, outlined on the Ontario government’s regulatory registry, is similar to PACE frameworks for commercial buildings that are in place in more than 35 states in the United States. It would create flexibility for a three-party approach, in which a borrower would obtain private financing and the municipality would register the loan, secure it with the same priority lien that applies on property tax arrears and collect loan payments (to be conveyed to the lender) through an added charge on the property tax bill.
Should municipalities choose to opt in, the Ontario government proposes that the financing mechanism would be available to commercial, industrial and multi-residential ratepayers for loans equivalent to up to 35 per cent of the property’s value. Financing must be used for energy and/or water efficiency upgrades and/or installation of on-site renewable energy generation, and borrowers would need to obtain consent from other loan-holders on the property.
Proposed parameters include a prohibition on penalties for paying off loans ahead of schedule. The consultation questions ask for feedback on whether lenders should be pre-approved to participate and whether further provincial regulatory oversight is required.
Potential benefits for lenders and municipalities
For lenders, PACE provides an extra measure of risk management since the loans would have senior ranking, alongside property tax arrears, in the debt stack. Purcell speculates that it could also open up business opportunities and operational efficiencies that could come with a standardized approach to loan administration. In the U.S., for example, financial institutions are prominent in the membership of the C-PACE Alliance, an association that promotes best practices for the mechanism.
For municipalities, it could be an expedient way to facilitate greenhouse gas (GHG) emissions reduction and/or water efficiency gains that ease demand on their utilities while offloading program management to the entities that actually specialize in lending technicalities. The Federation of Canadian Municipalities (FCM) published a PACE primer in late 2024, providing a province-by-province breakdown of enabling legislation and the programs it had fostered to that date. Those were largely confined to the residential sector, with Edmonton cited as a rare example of offering PACE for commercial buildings.
Under existing PACE rules, municipalities will recover their upfront capital as loans are repaid and the programs become self-sustaining, but it still requires ongoing oversight that could pose an even greater barrier, particularly for smaller municipalities. Purcell contrasts current requirements to negotiate terms and manage loan transactions versus the more simple involvement necessary to bring private lenders into the mix.
“It leverages the processes they already have in place to collect property taxes,” he notes. “It could make a lot more sense for cities if they can opt into a program where there are pre-approved lenders and a standardized process, and transactions just come to them for final review and adding to the property tax roll. That’s much more feasible to manage than a program they have to create from scratch.”
Broadening and stabilizing the landscape for borrowers
This approach to PACE financing wouldn’t necessarily deliver any perks to borrowers that they couldn’t obtain through conventional loan channels, but Purcell suggests there are some inherent benefits in broadening the “borrowers’ ecosystem” by opening up commercial access to the mechanism along with an ample ceiling on allowable loan value. As well, some borrowers may be attracted to the unique PACE characteristic that ties the loan to the property and transfers it to the new owner upon a sale.
“For this to this to help accelerate retrofits, it’s going to be key to see what kind of terms lenders would be willing to offer with the commercial PACE backstop,” Purcell muses. “To the extent that it translates into preferential financing terms — whether that’s lower interest rates or locking in that interest rate for a longer period of time or longer amortizations — that’s where it would really help to drive the market.”
Coincidentally, delegates to the International Energy Agency’s recent annual conference on energy efficiency identified heating and cooling in buildings and public-private collaboration among priorities for achieving a target to double energy efficiency progress, relative to 2023, by 2030. Canada was one of 35 national signatories to the Montreal Action Plan (so named for the host location of this year’s global conference), which pledges to put energy efficiency at the centre of energy policy.
“An essential element of all energy efficiency action is boosting private finance. Rapidly scaling up energy efficiency investments requires a comprehensive approach that addresses financial, technical and institutional barriers,” it states. “By strategically deploying public resources along with favourable regulatory frameworks and support tools, we can foster solutions and support the development of a strong energy efficiency services market.”
Business representatives participating in the conference’s panel discussions called for clarity and consistency in policymaking along with incentives and other financial supports to give lenders more assurance about program and borrower stability. Notably, the historical record suggests borrowers and lenders alike have reason to be wary that programs could be revised or cancelled if governments change.
“Stability in the rules is really important,” asserted Marie-Claude Dumas, president of Canadian operations for the multinational consulting engineering firm, WSP. “And we need to have clarity in the messaging so companies or customers can actually say: I understand what this means; I’m going to commit to it, get the financing and do it.”
Comments on the Ontario government’s proposal for commercial PACE financing can be submitted until Aug. 1, 2026.
