Northeast Green Banks Inspire National Clean Energy Financing Proposal
The National Climate Bank Act introduced this year is based in part on successful projects in Connecticut and New York.
Even though previous attempts to secure bipartisan support for a national green bank have failed to gain traction, advocates continue to promote the concept, this time with an even more ambitious proposal based in part on successful projects in the North-east.
The National Climate Bank Act, presented earlier this year by Les Sens. Edward Markey and Chris Van Hollen, aims to build on the growing network of state and municipal green banks, but on a much larger scale.
Green banks are financial institutions focused on stimulating private investment in clean energy goods and services. Whether public or not-for-profit, they use various financing techniques to reduce investor risk on clean energy projects, making them more attractive. They do not provide grants – as the loans are repaid, the capital is recycled into other projects.
The national proposal would create an independent, nonprofit climate bank that would be capitalized with $ 35 billion in federal funds. Using proven techniques developed by Connecticut Green Bank, the country’s first, and the New York Green Bank, one of the largest, the bank would be allowed to directly finance a range of clean energy projects, as well. than directing capital to the state and local communities. green banks.
Earlier proposals in recent years called for the creation of a fund within the Treasury Department as a transfer mechanism to provide capital to national and local green banks. This model was also featured again this year.
The Climate Bank proposal comes as the number of green banks across the country continues to grow. Since Connecticut established the first such entity in 2011, 13 additional green banks have formed at the state and municipal levels, together generating just under $ 4 billion in investment, according to the Coalition for Green Capital. , a non-profit organization that advocates for green banks.
Jeffrey Schub, the group’s executive director, said given the current stalemate in Washington, they didn’t expect climate banking legislation to go nowhere just yet. Instead, he said, “the strategy is to build support and put the Climate Bank into the draft of what climate policy would look like in 2021.”
His organization is working on signing as many sponsors as possible, as well as selling the idea to Democratic presidential primary candidates.
He estimates that $ 35 billion in federal funds could leverage up to $ 1 trillion in total investment over 30 years.
While the national bank could direct much-needed capital to state-owned banks helping finance investments in localized projects like distributed power, community solar power and energy storage, it could also directly mobilize funding in “more politically or practically complicated projects,” Schub said. These projects can include transmission lines carrying renewable energy across states and very large renewable energy projects in large scale.
“We have to put our foot on the gas,” he said.
Robert Klee, professor at the Yale School of Forestry and Environmental Studies and former commissioner of the Connecticut Department of Energy and Environmental Protection, came to the same conclusion. In a recent series Highlighting the state’s climate goal policies that can be used as a template for a national decarbonization plan, Klee cited a national green bank as crucial to unlocking the level of private capital that will be needed to fund a rapid deployment of clean energy.
What Connecticut and New York in particular have shown, Klee said in an interview, is how their funds can be used within existing capital and funding markets to draw investor attention to needed clean energy projects and put them at ease with financing new technologies while lowering their initial risk.
“Given the size and scale of the challenge we face, this is something that a handful of ruling states cannot do on their own,” he said. “It should be obvious – it’s about stimulating markets and encouraging private capital activity.”
Klee believes, however, that a federal investment of well over $ 35 billion is needed. He would like to see a national green bank funded at $ 50 billion a year for 10 years.
State-level green banks are hungry for this capital. While the Connecticut Green Bank is able to attract seven private dollars for every public dollar it invests, “from a capital raising perspective, we need another order of magnitude per year to meet the targets. that we’re supposed to achieve, ”said Bryan Garcia, the bank’s president and CEO. “A national bank would be able to provide us with this capital to intensify our activities. “
As it stands, the bank has had to work hard to stabilize its finances since Connecticut lawmakers, seeking to close a budget gap, plundered more than half of the bank’s taxpayer-funded income ago. two years. In addition to reducing operating expenses, the bank is working to create new sources of income. Earlier this year he released his first “green bond, backed by solar energy credits.
Garcia said they are currently working on an innovative “mini green bond” structure that would allow citizens to purchase low-value bonds under $ 1,000 to support clean energy investments in Connecticut. The yield could be around 3% to 5%. Garcia hopes to introduce the product by Earth Day next year.
“It’s a way to raise more capital to achieve our goals, but it’s also about involving citizens, working together as a society,” he said.
Mary Templeton, president and CEO of Michigan Saves, said she also needed the additional capital that a national climate bank could provide. Since its first loan in 2010, the independent nonprofit green bank has supported more than $ 200 million in energy financing and aims to reach $ 1 billion by 2023.
Templeton predicts that they will soon have to replenish the loan loss reserves they use to reduce risk to private lenders who fund their home and business energy retrofit programs. Additionally, she said, a national climate bank could help them better serve low to moderate income households. While their existing programs are doing this fairly well, there are still gaps – such as households with particularly low credit scores – that additional capital could help them fill.
Klee notes that while a national green bank has been slow to take hold in Washington, the U.S. Climate Alliance is focused on the development of new banks among its 25 Member States, and possibly beyond. The New York Green Bank has pledged to raise $ 1 billion in private capital to invest in clean energy inside and outside New York.