The most common question about the proposed National Climate Bank is, what the organization will actually do. The concept of leveraging private investment, and delivering job creation and environmental justice benefits can be compelling. But there is nothing more clarifying than the real-world example themselves.
That is why CGC and its partners have been working hard to create a series of detailed “use cases” that illustrate precisely what markets the Climate Bank – or the Clean Energy and Sustainability Accelerator as it was named when it passed the House last month – will invest in. They explain what the barriers are that slow investment and technology adoption, and the exact interventions the Accelerator and its state/local green bank partners will make overcome those barriers and drive investment. The detailed transaction schematics show the flow of money, how the end-users and the clean energy industry benefit, and how new opportunities for private investment are created.
And we are pleased to share here the first of these uses cases, focusing on delivering lower-cost solar power to low-to-moderate income (LMI) households through community solar installations. Community solar is an exciting application of solar PV technology because it enjoys the scale benefits of ground-mounted, grid-tied larger projects while delivering the economic benefits of rooftop solar PV to participating households.
Community solar also presents a solution to the inherent inequity of rooftop solar – one has to own a home in order to put solar panels on the roof. Homeownership rates are decline as income level falls, which means LMI households who rent are left out of the rooftop solar revolution.
However, simply signing up hundreds of LMI households to subscribe a community solar project isn’t so easy. There are a number of barriers that slow investment and ultimately participation of LMI households. These include:
- Community solar projects are complex and expensive to develop and pull together, even more so when the serve LMI households due to high marketing and subscription management cost;
- Capital providers that would normally invest or lend to a community solar project are hesitant to do so if the subscribers (and the repayment source) are LMI households because the lack of repayment data from this set of customers leads to a perception of high repayment risk; and
- If capital is extended to projects, it is likely at a cost that results in a solar price offered to potential subscribers that is actually more expensive than current power prices.
In this first case, two interventions are presented to overcome these barriers. The first, developed by the Maryland-based Climate Access Fund, is the LMI Revenue Guarantee Fund. The Accelerator would provide the seed capital necessary to create the Fund, which would in turn provide a partial guarantee to the private capital providers. This guarantee will stand behind the LMI household subscription payments, ensuring that up to pre-determined limits, private capital providers can be certain they will earn the revenue they expect from the project.
The purpose of this intervention, besides unlocking clean energy and savings for LMI households, is to build up a track record of real data on the true repayment risk so that in the future private capital will flow into these projects more freely and at prices that accurately reflect the risk. There are 50 million LMI households in America, and every one of them deserves cleaner and cheaper energy, whether or not they own their own home. The Accelerator can unlock this investment and market opportunity with this intervention.
The second intervention offered is modelled off the work of NY Green Bank. High upfront development costs are not only a barrier to project completion, but have negative impacts upon project completion. Development capital is expensive, so the more that is used in the more, the higher the resulting price of solar power is going to be in order to generate revenue sufficient to repay the development capital.
But some of the development capital is used to pay costs that are actually very low risk. For example, community solar projects often need to pay a significant upfront interconnection fee to the grid operator or utility to secure the right to sell its power into the grid. This fee is paid well before the project is operating and generating revenue. So the developer must use expensive development capital to pay this fee. However, for a well-structured and planned project, the likelihood of that project ultimately reaching completion and producing revenue is high. So the Accelerator, again working with state/local green bank partners, will extend an interconnection fee bridge loan, which is at a lower cost than the limited development capital. And the bridge loan is repaid upon project completion.
The benefit to this intervention is that the developer can proceed quickly with project development without seeking raise additional capital or tapping into expensive capital on hand. And the project costs overall are lower because the bridge loan has a lower cost of financing than the development capital. This lower development cost translates to lower solar prices for customers once the project is operational. Lower solar prices mean more customers and a larger total addressable market.
Both interventions are principled designed to achieve the same goals: unlock private investment that wouldn’t otherwise flow into clean energy projects, and do so in a way that delivers more and cheaper clean energy to end customers. And in the case of LMI households, in particular, expanding access and lowering energy burdens are critical to ensuring a just and equitable transition.
This is just the first of many cases. Here are just few more in the pipeline:
- Aggregation of small business upgrades through commercial property assessed clean energy warehouse facilities
- Lowering the upfront cost of rooftop solar through REC-based upfront financing
- Swapping coal power for renewable power for rural electric co-ops + decommissioning and worker transition support
- Whole home clean energy and resilience upgrades for LMI households
- Home electrification financing with electric heat pumps
So stay tuned for these and many more use cases to see exactly what the Accelerator will do and how it will equitably create jobs, reduce emissions and lower energy costs.