Green Bank FAQs



Green Banks produce numerous economic, governmental, and environmental benefits.

For instance, Green Bank financing can allow consumers to save money every month by financing clean energy generation (such as solar panels) and energy efficiency upgrades. Consumers’ monthly savings on energy bills can be greater than the monthly repayment, which results in instant positive cash-flow.

Green Banks directly create jobs in their state or market. By providing project financing for clean energy and energy efficiency installations, Green Banks stimulate local industry and create demand for new employees. There is also secondary job creation, as related service industries must grow in order to support the clean energy projects facilitated by the Green Bank.

By using limited public dollars to leverage private investment, Green Banks are able to do all this without expensive government subsidies or giveaways. Contributing to economic security while cutting state and federal deficits are priorities for both parties and Green Banks offer an attractive alternative to business as usual. In leveraging more private investment in clean energy, Green Banks speed up and scale up the transition to clean energy economy, allowing governments to hit their clean energy goals and reducing the total emissions from the energy sector.

For more information, see our page on Green Bank Benefits.

 

Green Banks work in partnership with private investors, offering financial products that de-risk clean energy investments and attract the entry of private lenders into clean energy markets. Green Banks do not compete with private investors. Rather, they fill gaps in the capital markets that private banks currently do not serve. There are segments of clean energy markets to which banks are currently unwilling to offer financing, or will only do so at exorbitantly high interest rates. For instance, many banks are unwilling to offer low-interest and long-term loans for a residential energy efficiency retrofit that is less than $10,000, or if the borrower has less than perfect credit.

Green Banks fill these financing gaps in partnership with private lenders by co-investing, offering credit enhancements to private banks, and warehousing clean energy projects. For instance a Green Bank may provide a loan loss reserve to limit the credit risk of borrowers, thereby allowing a private bank to lend at reasonable rates. Green Banks follow this common model, offering products that induce greater private investment.

 

The federal and state governments have a long history of financing large, critical infrastructure that offer broad public benefits to its citizenry. Government often assumes a financing role when a public good (such as roads, bridges, water, phone lines, sewage, power plants, etc.) is left unrealized because of a collective action problem, or when the government decides that it will support a desired market outcome through low-cost financing.

Parts of the energy sector are already publicly-financed, such as municipal utilities or federal administered agencies like the Tennessee Valley Authority and the Bonneville Power Administration. In fact, electricity services are one of the few large-scale public goods that are not regularly financed by the government. Therefore the government’s entry into clean energy financing should not be viewed as an intrusion into private markets. Rather, a Green Bank is the application of commonly used government tools to create numerous public goods and facilitate the development of private markets.

By using a public-private partnership model, Green Bank investments drive the flow of capital that helps all participating businesses make money. In this way, Green Bank activities enable private activity in clean energy markets. Using public money to create this benefit, in addition to the transition away from subsidies towards financing, represents a new, smarter way of facilitating clean energy market activity.

 

Green Banks increase the value of taxpayer dollars through leveraging private capital, catalyzing market transformation, and generating a host of other public goods like a cleaner environment, energy system resilience, and job creation. Government subsidies for energy are a critical method for supporting early stages of commercialization, helping new, reliable technologies gain market traction. When that market gains scale, however, subsidies can become a burden on taxpayers and may hinder the market’s ability to become self-sustaining without subsidies.

Under this new model, Green Banks will help clean energy markets move past the current subsidies, and draw in the critical private investment that is currently slow to enter the market. Over time, after subsidies are reduced and there is adequate private capital, a Green Bank’s role will be limited to only serving areas of the market that still need help moving beyond subsidies.

 

Green Banks have been supported by members of both parties because they help create cheaper, cleaner, and more reliable energy. Green Banks are a mechanism to attract private investment to help states achieve clean energy goals. And through their financial products, Green Banks lower the cost of clean energy to make it more affordable and accessible to consumers. They also help states transition to more sustainable clean energy markets that are not dependent on subsidies, and create local jobs and economic growth in the process. By facilitating private investment, lowering consumer’s energy bills and establishing robust private markets, Green Banks present a win-win for all consumers.