NY Green Bank’s Path to Profitability

Earlier this year, NY Green Bank reported that it was profitable for the first time in its history. This is a critical moment in the development of NY Green Bank, and an important marker in the Green Bank movement more broadly. NY Green Bank is the first Green Bank in the U.S. to generate positive net income, meaning the revenue earned on its finance activity is greater than the operating costs of running the organization. This demonstrates that Green Banks can be self-sustaining operations. By reaching profitability, NY Green Bank is successfully preserving ratepayer dollars while proving out the attractive investment opportunity in the state’s clean energy markets.

What makes this accomplishment even more impressive is that the organization reached this milestone of success one year ahead of schedule. As reported in the FY 2017 Financial Statements for the period ending March 31, 2017, the organization finished the year with $9.7 million in revenue against  $7.0 million in expenses for a net profit of $2.7 million. This financial success didn’t happen by accident. It was achieved through careful financial planning and an organizational growth plan laid out from the very inception of the Green Bank in 2013.

When capitalization was first approved for NY Green Bank by the New York Public Service Commission in late 2013, the order very specifically limited how much money could be used for operating expenses. Of the initial funds allocated to NY Green Bank, 8%, or $17.48 million, could be used for start-up and initial operating costs. (An additional $4 million was allowed for program evaluation costs.) The order stated that “once the Green Bank is fully capitalized and operational, [NYSERDA] expects the Green Bank administrative costs to be covered by customer fees and investment earnings collected by the Green Bank.”

This limit on operating expenses was confirmed in following orders that provided increased capitalization to the Bank, but specifically did not allow any of those funds to be used for operations. This meant that NY Green Bank must reach a point of profitable operations before exhausting the funds available to cover start-up costs.  In NY Green Bank’s filings, it targeted March 31, 2018 as the date by which it would be generating net income on an annual basis (NY Green Bank’s financial year runs April 1 through March 31).

Because of a tremendous effort in the past year that saw NY Green Bank grow its portfolio by almost $300 million – well in excess of the targeted $200 million – NY Green Bank was able to hit the target in FY 2017, one year ahead of schedule. Through June 30, 2017, the Bank has invested $409.4 million to support projects with a total cost of between $1.2 and $1.4 billion.

This pathway to profitability can serve as a model for all new Green Banks and related clean energy finance entities. NY Green Bank has shown how to provide catalytic finance for clean energy market growth while preserving public capital and generating a return for ratepayers. This careful financial planning and business management can be replicated to ensure other Green Banks around the world reach profitability in a prudent time frame. And, perhaps even more importantly, NY Green Bank’s operational success demonstrates to private investors that they, too, can make good returns on their money by investing in underserved parts of the clean energy markets.

 

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