National Green Bank and Infrastructure Bank Meet Different Goals

A National Infrastructure Bank, once called “the next best idea for the past 25 years,” looks like it may soon become a reality. Infrastructure has received considerable attention this election season, and Hillary Clinton has unveiled her plans for a $25 billion National Infrastructure Bank. The recently introduced Green Bank Act of 2016 has sparked interest in how a National Green Bank would fit with a National Infrastructure Bank. This post breaks down the similarities and differences between the two institutions.

Similarities

While the details of the latest version of the National Infrastructure Bank are still to be determined, it will likely share several similarities with the National Green Bank. Both institutions aim to use low-cost federal financing to spark investment across the country. Both institutions will also:

  • Be financially self-sustaining. The European Investment Bank, which some observers have compared to a potential National Infrastructure Bank, had no negative budgetary impact in 2015. Based on our experience, we expect a National Green Bank to have a net zero budgetary impact, like other federal credit programs.
  • Offer a range of financing tools to be responsive to local needs. Example tools include loans and loan guarantees.
  • Leverage other funds from local governments and/or private investors. The Clinton campaign estimates that a $25 billion infrastructure bank would catalyze an additional $225 billion in infrastructure investment. A ratio of private to public investment of roughly 10:1 is similar to the impact we’ve seen Green Banks have on private investment in states like Connecticut.
  • Choose recipients based on merit

Clean energy is different than other types of infrastructure

There are also several key differences between the National Infrastructure Bank and Green Bank. These differences reflect the fact that clean energy investments have different characteristics than other infrastructure investments. Clean energy projects like energy efficiency and solar can literally pay for themselves. By that, we mean the cash flows from clean energy projects are enough to pay for any financing, construction, and operating costs. While some toll roads are able to cover their costs, other road and infrastructure projects frequently do not generate enough cash flow to do this, relying on subsidies instead.

The attractive investment characteristics of clean energy is one of the reasons for the existence of a large and growing number of state and local Green Banks that invest in clean energy projects. Connecticut created the first state Green Bank in 2011. According to its most recent numbers, the Connecticut Green Bank has leveraged $181 million of its own funds to attract over $756 million of private investment in clean energy, for a total investment of $937 million. These investments supported the deployment of 194 MW of clean energy while creating over 11,700 job-years. Four other states have replicated Connecticut’s model by creating their own Green Banks. Montgomery County, Maryland recently became the first county to establish a local Green Bank. In our work around the country, we’ve heard from dozens of states, counties, and cities that are interested in building on this successful model—especially if federal financing becomes available.

The National Green Bank funds local institutions, not individual projects

The strength of state and local Green Banks means there are a number of existing and emerging institutions that can be financed. The National Green Bank is designed to directly finance these institutions, rather than projects. Financing institutions offers a number of benefits:

  1. Enable federal financing to support smaller scale projects. Small projects are often unable to access federal funds, yet small projects can be some of the most impactful clean energy projects. A residential energy efficiency loan, such as the Connecticut Green Bank’s Smart-E program, is frequently less than $10,000. The ability to reach smaller project sizes is especially critical to catalyzing growth in underserved markets, such as renters or low-income households.
  2. Support clean energy market development activities. Green Banks engage in activities that animate demand and resources for clean energy by providing education, outreach, and other types of support. This work fills a critical gap in a still-developing market, allowing clean energy financing vehicles to emerge and flourish.
  3. Give control over investment to local institutions with deep knowledge of local energy markets. Energy markets and needs vary dramatically from state to state. Green Banks are well positioned to under their unique markets and make decisions about which markets to enter and projects to finance. This means more effective investing.

In contrast, a National Infrastructure Bank would be designed to provide low-cost financing to large-scale projects of “regional or national significance.” Project examples could include highways, broadband networks, and water systems. These projects are typically enormous; a previous proposal set the minimum project size for a National Infrastructure Bank at $100 million. While over the last 25 years State Infrastructure Banks have been established, they have been wildly unevenly used and are not a significant part of plans for a National Infrastructure Bank. Large-scale infrastructure projects often hinge on the cost of financing, and are less in need of the market development work provided by local institutions.

Room for both

Catalyzing growth in clean energy and infrastructure overall are both important goals. The best approach is to have two national institutions that are self-sustaining and address the specific barriers in each market.

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