The Clean Energy Future Blog

By Coalition for Green Capital

The Green Bank Act of 2016 was introduced in the Senate today by Senators Murphy (CT), Blumenthal (CT), and Whitehouse (RI). The Act would create a $50 billion national Green Bank that would provide capital to state and local Green Banks to finance clean energy projects that save money for consumers and businesses. The national Green Bank would enable the creation of locally-focused Green Banks to drive private investment, lower energy costs and create jobs. There is companion legislation in the House. More details can be found in our review of the legislation.

The Green Bank model has been tremendously successful in states like NY, CT, and RI. The Connecticut Green Bank has leveraged more than $800 million in clean energy investments since it was founded in 2011. The NY Green Bank has supported more than $518 million in clean energy investments, and has more than $500 million in its active pipeline. The Rhode Island Infrastructure Bank, a relatively recent entrant into the Green Bank scene, has already sparked $17.2 million in clean energy investments and has launched a statewide commercial PACE program. Many more states have similar clean energy financing institutions, or are in the process of creating them.

The national Green Bank is designed to spark more state and local efforts. It would capitalize new Green Banks, alleviating the financial pain felt by governments all over America who see the value in the Green Bank model but lack funding to launch a new entity. And it would allow the existing Green Banks to multiply their impact many times over.

Looking forward to 2017, Green Banks clearly have a role to play in delivering the infrastructure growth that both parties have focused on this election. CGC has written on how a federal Green Bank compliments other infrastructure policies like a national infrastructure bank.

By Coalition for Green Capital

NY Green Bank Closes $37.5M Solar Deal with Vivint 

“The loan is structured as a medium-term (five-year) note and allows Vivint Solar to recycle capital that can be used for the installation of new residential solar systems in New York. With this loan, the bank says, Vivint is expected to continue to add to its existing New York projects totaling nearly 58 MW of solar on a total of approximately 8,250 New York homes. These solar systems will add to the more than 50,000 New York homes that have already installed solar, the bank notes.”

R.I. Infrastructure Financing Approved for Energy-Efficiency Projects in 6 Communities

“The Pawtucket projects include installation of LED streetlights throughout the city as well as high-efficiency boilers, energy-efficient windows and lights, and Wi-Fi programmable thermostats in municipal buildings. The $3.9 million in upgrades is expected to save the city’s taxpayers more than $750,000 a year “The Rhode Island Infrastructure Bank is putting Rhode Islanders back to work, strengthening our infrastructure, and reducing our demand for energy by providing a dependable source of capital,” Governor Raimondo said in a statement.”

Green Banks and ‘Big Switch’ to a Low Carbon Future

NRDC is working to support the creation of new public institutions called Green Banks as one way to help mobilize private capital and speed up the big switch. Green banks have been created to partner with the private sector to increase investment in clean energy and help make more clean energy financing mainstream, towards no longer needing public assistance. Green banks often attract private capital by de-risking clean energy projects, such as by co-investing in them or offering credit enhancements, or making the projects easier for big banks to finance, such as by aggregating lots of small projects together and filling other market gaps like marketing and consumer awareness. Which financial and other tools the green banks employ and which technologies they invest in depends on the needs of the local markets in which they are active and on the green bank’s missions.

Wastewater Plant to Be Solarized

Once complete, Newport will have the only wastewater treatment plant in Rhode Island utilizing solar energy. Supporting documentation specifies that the project is expected to be wrapped up by February of 2019. Funding will be through a $1.2 million loan from the Efficient Buildings Fund administered by the Rhode Island Infrastructure Bank and an $896,200 grant from the Clean Water State Revolving Fund.”

What 10 Years of RGGI’s Carbon-Trading Agreement Means for the Future

“The biggest success of RGGI is not a move away from coal, but a solid investment in energy efficiency. Some critics argued the trading prices were so low RGGI could never achieve anything, but that too proved not to be the case. Budgets for energy-efficiency programs in the nine RGGI states grew from $575 million in 2008 to nearly $2 billion in 2015, according to Acadia. That number is expected to continue climbing.”

How Funders are Using the Power of Their Investments to Impact Climate Change

“Given the scale of the challenge and political momentum generated by the Paris Agreement, quite a lot of our portfolio is climate-focused.… We fortunately already have a broad set of proven [technology] solutions that we know to be effective and cost-efficient. The challenge is about finding the right financing solutions or business models to incentivize large-scale investment into them so that they are widely adopted and scaled up.”

Freddie Mac Multifamily Launches Green Advantage(SM) to Promote Affordable, Resource-Efficient Rentals

Green Up enables borrowers with qualifying properties to increase the amount of their eligible Freddie Mac Multifamily loan by up to 50 percent of projected energy and water savings. Under Green Up Plus(SM), borrowers can increase the loan amount by up to 75 percent of the projected savings. Borrowers who go for the Green Advantage may also get better pricing as an extra incentive to go green. Under Green Up, savings are calculated through a Green Assessment(SM), a short, straightforward evaluation of green opportunities, estimated costs, and projected savings. For Green Up Plus, borrowers must provide a Green Assessment Plus(SM), which is a more detailed analysis, based on an ASHRAE Level 2 assessment, that can potentially lead to greater savings opportunities.

By Coalition for Green Capital

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.

By Coalition for Green Capital

The goal of any government’s solar policy should be to:

• Rapidly accelerate solar adoption in order to displace fossil fuel-based electricity;
• Ensure that solar is cheaper than grid power, so customers save money; and
• Do so at the least possible cost to taxpayers.

Green Banks are aligned with these objectives. Achieving these goals requires enabling market growth with financing, and reducing the amount of subsidy available as less is required. Subsidies have played a critical role in driving clean energy markets, because they change the economic calculus for customers by lowering the effective price of solar electricity so that it is competitive with the grid. Financing is crucial because it eliminates upfront cost to customers, so that they can enjoy cheaper electricity, paid off over time.

As the cost of solar technology falls, though, the level of subsidy needed to make solar price competitive with the grid should also fall. Lowering subsidies in a vacuum, without offering other forms of market support to ensure customers can still cover the upfront cost, may slow market growth. But if subsidies are lowered predictably and supplemented with increased financing, then solar adoption can continue at lower cost to the public.

This is where Green Banks come in. Green Banks can ensure that affordable financing is available to cover 100% of the upfront cost of solar. As access to financing increases, and as installation costs continue to fall, governments can step down subsidy levels.

The net result is continued solar market growth, but with lower net public cost. Public sector cost is reduced because public capital offered in the form of financing is repaid, which is different from a subsidy (an expense that is not repaid). Customers can adopt solar with no money out of pocket, enjoy solar electricity that is cheaper than grid power, and the total cost to taxpayers is lowered.

This transition from subsidies to finance is already taking place in Connecticut, with tremendous success. The Connecticut Green Bank, in addition to supporting finance for solar, is also tasked with managing the state’s residential solar subsidy program, known as RSIP. The Connecticut Green Bank has prudently managed the wind down of the program, lowering the subsidy per watt based on market conditions and feedback from installers.

At the same time, the Connecticut Green Bank has ensured multiple financing products are available for homeowners. And they’ve worked closely with installers to educate them on the finance products, provide marketing collateral and explain the enormous business opportunity available. As a result, installers have a powerful tool to sell their product, and have a clear understanding of why and when subsidies are falling. Installers are hugely supportive of this approach, and the market is steadily growing with lower subsidies.

The chart below tells the story clearly. Residential rooftop solar adoption is skyrocketing in Connecticut. And at the same time, the level of subsidy offered to customers has fallen precipitously.

There are two key takeaways from this chart:

• The Connecticut residential solar market was weak, despite enormous subsidies, prior to the creation of the Green Bank. Once the Green Bank was created, solar adoption took off. And not all of this growth was financed by the Green Bank. Private sector finance companies, like SolarCity, only came to the Connecticut market after the Green Bank was created. This is despite the fact that the Green Bank offered financing to local installers, which looked like a competing product. For private financiers, the Connecticut Green Bank was a signal to the market that the state was focused on sustainable and rapid market growth.

• Though the cost of installing solar fell significantly over this period, the actual net cost of solar to the customer remained relatively flat (as shown by the grey bars). This is because the benefit of reduced installation cost mostly accrued to the government, as it lowered the subsidy level. So the net cost to customers for solar was effectively the same in 2015 as it was in 2011. However, annual deployment increased from zero to 60 MW. This is because financing solutions are now plentiful, allowing solar adoption with zero upfront cost. By eliminating the barrier of upfront cost, despite lower subsidies, rooftop solar became far more accessible and attractive.

All states can replicate this approach of ramping down subsidies as costs fall and increasing financing through and with Green Banks. The timing of this transition will vary across markets, as keeping solar power competitive with the grid depends on local electricity prices. But there are states today that offer rich subsidies for solar that are completely unnecessary—where solar adopters are able to enjoy solar power at prices far below grid price. Customers don’t need this level of subsidy, and there is no need for taxpayers to bear the cost. These states should shift that funding from subsidies to financing as Connecticut has, enabling market growth at lower taxpayer cost.

By Coalition for Green Capital

As part of the redesign of CGC’s website, we have now posted many of CGC’s work products and presentations on our new Resources Page. This includes presentations delivered at conferences, lectures delivered at universities, and full Green Bank studies produced in partnership with various state governments. We’ve also linked to excellent Green Bank materials produced by other organizations such as the DOE and the OECD.

Here are quick examples of the content we’ve posted on our Resources Page:

• CGC’s new Green Bank Resources Page includes the Nevada Green Bank Report and related presentations that CGC recently completed for the Nevada state legislature. This work was done in partnership with the Governor’s Office of Energy, and outlines specific market opportunities and implementation plans for the creation of a Green Bank in great detail.

• CGC has also posted a thorough report it completed for the Maryland legislature. The report goes into great detail on the necessary steps that must be taken to transform the Maryland Clean Energy Center, an existing clean energy financing institution, into a full-fledged Green Bank. The report includes specific analysis of the markets a Green Bank could serve, what financial products would be most effective in Maryland, and how to capitalize a Maryland Green Bank.

• CGC’s Green Bank White Paper, which details the key features and activities of a Green Bank, as well as pathways for creating Green Banks, is also available on the Resources Page. This is an excellent resource for anyone seeking a comprehensive introduction to the core Green Bank concept.

And there is a great deal of quality content on the Resources Page beyond these three examples! We encourage visitors to explore and learn from the content on our Resources Page. We’ll be constantly adding to the page with more original content, and linking to valuable materials from operating Green Banks around the world.

By Coalition for Green Capital

Rhode Island Follows Connecticut’s Footsteps

The Rhode Island Infrastructure Bank (RIIB) has officially launched the state’s C-PACE program. RIIB, Rhode Island’s Green Bank, has followed the Connecticut Green Bank’s successful model of using a centralized statewide PACE administrator.

The numbers prove the success of the centralized commercial PACE administration model. Connecticut’s C-PACE program has closed $115 million in transactions through Q1 2016, accounting for nearly half of the entire national commercial PACE market. CT’s model has achieved this success despite Connecticut having only 1% of the national population.

Key Benefits of Statewide PACE Administrator

In following this single statewide PACE administrator model, Rhode Island will enjoy two key benefits:

• Consistency across the state
• Local governments avoid the burden of PACE administration

A single statewide administrator plays a very important role in facilitating consistency across many aspects of a PACE program. An administrator can promote consistency in program rules, underwriting criteria, project eligibility, consumer protection standards, collections and accounting systems, application processes, forms and documentation. This kind of standardization is vital for transforming the PACE market—consistency across projects and geographies reduces transaction costs and makes investments more attractive to private investors. The result is more private capital flows into the state’s PACE market.

A single statewide administrator can also help ensure the success of the PACE program by relieving local governments of the various burdens associated with administering a PACE program. Statewide PACE administrators can interface with local governments, help them set up collection and accounting systems for the PACE financing, and serve as a central point of contact and information for capital providers, contractors, and property owners that want to participate in the PACE program.

In following the statewide PACE administration model that was pioneered in Connecticut, RIIB has engineered its PACE program for success.

Rhode Island C-PACE Picking Up Steam

Rhode Island’s C-PACE program allows owners of eligible commercial and industrial buildings to finance up to 100% of energy efficiency, renewable energy and water conservation improvements, and repay those loans on property tax bills.

RIIB has contracted with Sustainable Real Estate Solutions to administer the program. The C-PACE program has an open capital platform, meaning any lender can participate and make loans through RIIB’s C-PACE structure. Long-term financing through RIIB’s C-PACE will enable building owners to make deep, multi-measure retrofits with long payback periods, where the term of financing matches the life of the measure (up to 25 years).

Out of the state’s 39 municipalities, seven municipalities are already participating in this statewide program, and seven more are discussing participation.