By Peter Behr
Aug. 31, 2020
A very unusual bond offering hit the market last month: $16.8 million in $1,000 chunks offered first to ordinary investors, a strategy that reached back to the public war bonds that helped the U.S. bankroll World War II.
They are called Green Liberty Bonds, issued by a state-backed nonprofit called the Connecticut Green Bank to add capital to the bank’s campaign to fund rooftop solar panels on the state’s homes and business.
The bonds were snapped up, even with the state shut down by the COVID-19 pandemic that forced the bank to market them with online webinars. Nearly $10 million worth were purchased by individual investors, with the proceeds going to help fund the bank’s programs.
The bond sale is an innovation from the Connecticut Green Bank, which is pioneering an unconventional strategy for using state policy to accelerate investments in clean energy at the community level, said bank President Bryan Garcia. The bank’s complex program structure includes solar installations, home energy investments and renewing hydroelectric dams on state rivers.
With state budgets hit hard by the pandemic, the transition is essential, Garcia said in an interview. “Government isn’t going to solve this problem, so we have to enable more private investment to come in to finance clean energy so we can scale it up and get it deployed,” he added.
Instead of tapping the federal budget for support, as the Obama administration did a decade ago with its clean energy stimulus grants and loan guarantees, the Connecticut strategy is to entice commercial bank lending to accelerate clean energy investments. The private loans are coupled with federal solar tax credits where they can be used, an assessment on Connecticut ratepayers that comes to under $10 a year, and state greenhouse gas reduction credits.
“The prior model was just giving the money away,” Garcia said.
A very unusual bond offering hit the market last month: $16.8 million in $1,000 chunks offered first to ordinary investors, a strategy that reached back to the public war bonds that helped the U.S. bankroll World War II.
They are called Green Liberty Bonds, issued by a state-backed nonprofit called the Connecticut Green Bank to add capital to the bank’s campaign to fund rooftop solar panels on the state’s homes and business.
The bonds were snapped up, even with the state shut down by the COVID-19 pandemic that forced the bank to market them with online webinars. Nearly $10 million worth were purchased by individual investors, with the proceeds going to help fund the bank’s programs.
The bond sale is an innovation from the Connecticut Green Bank, which is pioneering an unconventional strategy for using state policy to accelerate investments in clean energy at the community level, said bank President Bryan Garcia. The bank’s complex program structure includes solar installations, home energy investments and renewing hydroelectric dams on state rivers.
With state budgets hit hard by the pandemic, the transition is essential, Garcia said in an interview. “Government isn’t going to solve this problem, so we have to enable more private investment to come in to finance clean energy so we can scale it up and get it deployed,” he added.
Instead of tapping the federal budget for support, as the Obama administration did a decade ago with its clean energy stimulus grants and loan guarantees, the Connecticut strategy is to entice commercial bank lending to accelerate clean energy investments. The private loans are coupled with federal solar tax credits where they can be used, an assessment on Connecticut ratepayers that comes to under $10 a year, and state greenhouse gas reduction credits.
“The prior model was just giving the money away,” Garcia said.
A dozen other states and the District of Columbia have followed Connecticut’s lead with a green bank or similar strategy. Green lending is part of Democratic presidential nominee Joe Biden’s energy platform and the climate platforms of House and Senate Democratic leadership (Climatewire, Aug. 26).
Last month, the House authorized creation of a federal green bank to be funded with an initial $20 billion stake. Two dozen state governors acting through the U.S. Climate Alliance wrote congressional leaders calling for enactment of a similar measure in the Senate.
“The momentum for a national climate bank is stronger than it’s ever been in more than a half-dozen years” of pressing the strategy with Congress, said Jeffrey Schub, executive director of the Coalition for Green Capital.
The program poses a contrarian question for Biden and progressives on his side: Does green energy need an infusion of green capitalism to hit its far-reaching climate and job growth targets?
And it may offer a counterpoint to accusations that Biden and his party would turn clean energy programs into socialism, said Reed Hundt, a director of the bank and former Clinton administration official who is considered a father of the green bank strategy. “The green bank is designed to accelerate market trends, not fight them,” Hundt said.
More support for solar
Between the Connecticut bank’s formation in 2014 and mid-2019, it has spent $260 million on its agenda while raising $1.42 billion from banks and other private investors, according to its most recent audited financial statement. It has funded solar panels and other projects for more than 40,000 homes and 375 businesses in the state, generating $87 million in state taxes. The clean energy projects will reduce carbon emissions equal to the reductions from removing 1.1 million vehicles from the road, the bank said.
The added solar power is still a fraction of the state’s power generation, which totals 10,464 megawatts, according to the U.S. Energy Information Administration. But according to solar developer James Moore, it has opened an important door for residential solar development.
“What the Green Bank has done has shown leadership in ways to make more projects work financially for Connecticut business and homeowners, that leverages private financing as well,” said Moore, co-president of SunCommon in Waterbury, Vt. His company’s solar unit installations in Vermont and New York’s Hudson Valley approach 100 MW.
Soon after Connecticut’s green bank opened, Garcia met with members of the state’s banking association, who were not happy with the new competition.
“They said, ‘The last thing we want is another state bank standing in front of our business,’ and I was like, ‘Whoa. Well, my goal is to enable more of your private capital investment to solve the problems that the state is trying to address, which is climate and clean energy,'” Garcia said.
Over the past decade, banks and credit unions have become a lot more comfortable with solar lending, which is winning a place alongside car, mortgage and home improvement loans, Moore said.
The steep decline in the costs of solar power to customers, compared with utility electricity rates, created a built-in dividend that property owners can tap either by buying or leasing solar units, Garcia said.
The bank’s C-PACE solar program looks to private banks to fund an approved solar installation. The costs are spread over a 15-20-year term, like a mortgage, but are added to the owner’s property tax bill. The payments go to the bank, which reimburses the private lender.
Garcia said that for a typical customer, solar installation in the state now delivers power at 12 to 13 cents per kilowatt-hour, 6 cents better than the utility’s bill.
“The solar contracts deliver a predictable value over a long period of time,” Moore said, with the rooftop electricity offsetting a large part of the monthly electricity bill. Customers “know they will be able to offset a large portion of their electric bill for decades to come.”
“The banks see they can get positive cash flow from day one,” he added.
Shouldering risk
In moving to a climate bank strategy, Connecticut officials are accepting the opposite sides of the lending equation. They have gained the leverage of a fivefold increase in clean energy investments thanks to the impact of borrowed capital, but have exposed the state and its citizens to the risks of customer delinquency and default. A collision between leverage and risk played out disastrously in the 2008 mortgage banking collapse.
“To engage private investors into this market, somebody had to take the risk,” Garcia said. If a solar customer can’t keep up loan repayment, the private investors are paid first, the Green Bank last. “If the household stops paying the bill, who is left holding the bag? The Connecticut Green Bank,” he said. “We are first at risk for non-repayment.”
He cited the bank’s capital, $211 million for the fiscal year ending June 2019, as the foundation of its strength. “We fully believe people will pay us back,” he said.
But it was clear the pandemic’s huge impact on the economy created a new, unimagined test. The business shutdown in Connecticut reduced electricity rates. The state’s unemployment rate soared from 3.8% in February to 10.2% in July.
Before this year, the default rate on the bank’s projects averaged 1% or less, its audit reported.
“When COVID hit, every financial institution took a look at, what are the risks of non-repayment?” Garcia said. Bank policymakers came up with a plan that gave solar customers an option to defer payments due this year, adding a year to the end of the lease period, he said. “We want to help customers manage through this challenging time,” the bank president said.
Connecticut Green Bank reported that 10 property owners in the main solar unit program, representing $11.8 million in installations or 16% of the total loan program, inquired about the deferral program. Seven ultimately received six-month extensions in payments.
“So far very few [customers] have come to us and said they needed to restructure their payment this year because they were struggling,” Garcia said. “Knock on wood.”
“Worrying about [defaults] is like worrying about fraud in mailed-in ballots,” said Hundt. “It’s fantasy.”
Last month, the House authorized creation of a federal green bank to be funded with an initial $20 billion stake. Two dozen state governors acting through the U.S. Climate Alliance wrote congressional leaders calling for enactment of a similar measure in the Senate.
“The momentum for a national climate bank is stronger than it’s ever been in more than a half-dozen years” of pressing the strategy with Congress, said Jeffrey Schub, executive director of the Coalition for Green Capital.
The program poses a contrarian question for Biden and progressives on his side: Does green energy need an infusion of green capitalism to hit its far-reaching climate and job growth targets?
And it may offer a counterpoint to accusations that Biden and his party would turn clean energy programs into socialism, said Reed Hundt, a director of the bank and former Clinton administration official who is considered a father of the green bank strategy. “The green bank is designed to accelerate market trends, not fight them,” Hundt said.
More support for solar
Between the Connecticut bank’s formation in 2014 and mid-2019, it has spent $260 million on its agenda while raising $1.42 billion from banks and other private investors, according to its most recent audited financial statement. It has funded solar panels and other projects for more than 40,000 homes and 375 businesses in the state, generating $87 million in state taxes. The clean energy projects will reduce carbon emissions equal to the reductions from removing 1.1 million vehicles from the road, the bank said.
The added solar power is still a fraction of the state’s power generation, which totals 10,464 megawatts, according to the U.S. Energy Information Administration. But according to solar developer James Moore, it has opened an important door for residential solar development.
“What the Green Bank has done has shown leadership in ways to make more projects work financially for Connecticut business and homeowners, that leverages private financing as well,” said Moore, co-president of SunCommon in Waterbury, Vt. His company’s solar unit installations in Vermont and New York’s Hudson Valley approach 100 MW.
Soon after Connecticut’s green bank opened, Garcia met with members of the state’s banking association, who were not happy with the new competition.
“They said, ‘The last thing we want is another state bank standing in front of our business,’ and I was like, ‘Whoa. Well, my goal is to enable more of your private capital investment to solve the problems that the state is trying to address, which is climate and clean energy,'” Garcia said.
Over the past decade, banks and credit unions have become a lot more comfortable with solar lending, which is winning a place alongside car, mortgage and home improvement loans, Moore said.
The steep decline in the costs of solar power to customers, compared with utility electricity rates, created a built-in dividend that property owners can tap either by buying or leasing solar units, Garcia said.
The bank’s C-PACE solar program looks to private banks to fund an approved solar installation. The costs are spread over a 15-20-year term, like a mortgage, but are added to the owner’s property tax bill. The payments go to the bank, which reimburses the private lender.
Garcia said that for a typical customer, solar installation in the state now delivers power at 12 to 13 cents per kilowatt-hour, 6 cents better than the utility’s bill.
“The solar contracts deliver a predictable value over a long period of time,” Moore said, with the rooftop electricity offsetting a large part of the monthly electricity bill. Customers “know they will be able to offset a large portion of their electric bill for decades to come.”
“The banks see they can get positive cash flow from day one,” he added.
Shouldering risk
In moving to a climate bank strategy, Connecticut officials are accepting the opposite sides of the lending equation. They have gained the leverage of a fivefold increase in clean energy investments thanks to the impact of borrowed capital, but have exposed the state and its citizens to the risks of customer delinquency and default. A collision between leverage and risk played out disastrously in the 2008 mortgage banking collapse.
“To engage private investors into this market, somebody had to take the risk,” Garcia said. If a solar customer can’t keep up loan repayment, the private investors are paid first, the Green Bank last. “If the household stops paying the bill, who is left holding the bag? The Connecticut Green Bank,” he said. “We are first at risk for non-repayment.”
He cited the bank’s capital, $211 million for the fiscal year ending June 2019, as the foundation of its strength. “We fully believe people will pay us back,” he said.
But it was clear the pandemic’s huge impact on the economy created a new, unimagined test. The business shutdown in Connecticut reduced electricity rates. The state’s unemployment rate soared from 3.8% in February to 10.2% in July.
Before this year, the default rate on the bank’s projects averaged 1% or less, its audit reported.
“When COVID hit, every financial institution took a look at, what are the risks of non-repayment?” Garcia said. Bank policymakers came up with a plan that gave solar customers an option to defer payments due this year, adding a year to the end of the lease period, he said. “We want to help customers manage through this challenging time,” the bank president said.
Connecticut Green Bank reported that 10 property owners in the main solar unit program, representing $11.8 million in installations or 16% of the total loan program, inquired about the deferral program. Seven ultimately received six-month extensions in payments.
“So far very few [customers] have come to us and said they needed to restructure their payment this year because they were struggling,” Garcia said. “Knock on wood.”
“Worrying about [defaults] is like worrying about fraud in mailed-in ballots,” said Hundt. “It’s fantasy.”