The Clean Energy Future Blog

By Coalition for Green Capital

Earlier today, Congressman Chris Van Hollen (D-MD) introduced the Green Bank Act of 2014 in the House. Cosponsors of the bill include House Representatives: Earl Blumenauer, Gerry Connolly, Elizabeth Esty, Jim Himes, Eleanor Holmes Norton, Jim Langevin, and Louise Slaughter. Senate cosponsors include Richard Blumenthal and Chris Murphy. The Green Bank Act of 2014 would establish a Federal Green Bank with a maximum capitalization of $50 billion from Green Bonds and the authority to co-fund the creation of state-level Green Banks with a low-interest loan of up to $500 million. Senator Chris Murphy of Connecticut also introduced a companion bill in the Senate.

Like various state green banks, the Federal Green Bank would provide financing for clean energy and energy efficiency projects that cannot deploy at scale due to lack of reasonably priced financing. Specifically, the Green Bank will address “financing gaps” where credit worthy projects are currently unable to receive adequately low-priced financing from the private capital markets.

A Federal Green Bank, as proposed in the new legislation, would provide low-cost and long-term financing for clean energy and energy efficiency projects in partnership with private investors. This activity would animate private sector investment, reduce the cost of renewable sources of power and accelerate the deployment of clean energy technology in the United States. The Federal Green Bank will also catalyze the development of state green banks through its authority to offer low-interest loans of up to $500 million to any state green bank that operates under similar principles and has its own matching funds.

CGC’s CEO, Reed Hundt, says: “Chris Van Hollen and his colleagues in the House and Senate have come up with an ingenious way to help fund state green banks. If this bill were passed, all states would have the option of receiving substantial funding from the federal government to help finance on a local level the move to the new power platform. Cleaner, cheaper, and more reliable electricity is what every state could deliver to its citizens with the help of the Van Hollen Bank.”

According to the legislation, the Green Bank will initially be supported with $10 billion in “Green Bonds” issued by the Treasury. The Bank will have a 20 year charter and the ability to acquire another $40 billion from Green Bonds. These funds will spur development of clean energy markets through loans, loan guarantees, debt securitizations, insurance, and other forms of financing support or risk management for qualified clean energy and energy efficiency projects. The legislation includes tax provisions on deductibility of foreign-related interest expenses to offset the Green Bank cost.

CGC is thrilled to see how this legislation will help state clean energy finance institutions reach their full potential!

By Coalition for Green Capital

CGC congratulates Rhode Island gubernatorial candidate Gina Raimondo on the announcement of a Rhode Island Green Bank as part of her state environmental policy plan!

“With the reality of climate change we need to be increasing our efforts to make our state more energy efficient, reduce our dependence on fossil fuels and adapt to its impact. Rhode Island can become a model for the entire country on renewable energy usage and climate change preparedness.”  Learn more here

By Coalition for Green Capital

A recent Guardian article ventures that a group of wealthy investors would need to invest $50 billion today to buyout and shut down all the private and public coal companies in the US (the Guardian). Alternatively, the cost to the investors would be far less than $50 billion if the investors were to purchase all coal output starting in 2020. This buyout could occur as a charitable grant from one or more investors—similar to the Nature Conservancy business model. This one-time investment would yield financial benefits for years to come, not to mention its ability to rescue shareholders, owners, and workers from a quickly sinking ship. The health and environmental benefits alone from closing coal have been valued at $100 – $345 billion per year according to a National Academy of Sciences Report and a Harvard Medical School Study (the Guardian). So why not just shut down coal at the source?

A critical reader will of course retort that if all of coal is bought out and shut down, what will fill the capacity gap? Just as the consumption of coal is expected to decline, electricity generation from renewables is expected to increase. EIA predicts that as the coal industry shrinks amidst tighter federal regulations and declining popularity, renewable generation (wind, hydro, biomass, geothermal, and solar) is expected to grow by more than 7% (EIA). Perhaps most importantly, consumers are demanding a cleaner replacement.  According to a recent survey, 85% of consumers want to take advantage of low-carbon technologies (Bloomberg New Energy Finance). The replacement for coal must be cleaner and cheaper.  A good deal is the best way to ensure that consumers will move to the new platform quickly—and bring the private sector with them.

The good news is that as coal plants disappear across the country, an alternative can and will appear.   A “Cash for Coal” Program works through a system of reverse auctions at which a green bank would provide funding for companies to close coal plants and low-cost financing to replace plants with clean sources of generation. A green bank is a publicly funded financing institution that provides low-cost, long-term financing support to clean, low-carbon projects by leveraging public funds through the use of various financial mechanisms to attract private investment. Through this program, the green bank will purchase coal plant facilities in a reverse auction process from bidders offering the lowest price per ton of CO2 emitted—a technique effectively utilized in the spectrum auctions since the 1990s. Then bidders can use green bank financing, coupled with cash received from the sale of the coal plant to construct or purchase replacement electricity. Thanks to the availability of low-cost financing to ease the transition, replacement power generation can maintain wholesale electricity prices at $0.05-0.08/kWh. With these low prices, encouraging consumer pull for clean energy is easy.

Now is the time to make this happen. From the coal-industry perspective, $50 billion today is worth much more than $50 billion in 2020—which cannot even be guaranteed given the declining strength of the coal industry. Given that US monthly coal production has been declining since 2012 (EIA), coal output in 2020 will likely be worth much less. Isn’t now the time to sell?

Alternatively, investors may choose to purchase all coal output starting in 2020, which would leave sufficient time to bring clean alternatives to scale so the price impacts do not hurt consumers. Isn’t this what renewable energy providers want—restricted coal supply, increased demand for clean alternatives, and no negative repercussion on the consumer? The impact on the price of coal as a result of a full or partial buyout will be no worse than the impact of increased regulation by strict federal regulations. Once the coal industry is bought out and shut down at the source, innovative technologies and financial mechanisms will fully step in to offer a cleaner and cheaper replacement.

By Coalition for Green Capital

The Green Bank Academy was a two-day event designed to help state energy and finance officials from around the country to learn about and discuss the establishment and coordination of state Green Banks. Leaders from over a dozen states at various stages of Green Bank development attended the Green Bank Academy.

Speakers at the Green Bank Academy included Dan Esty, outgoing Commissioner of the Connecticut Department of Energy and Environmental Protection, Congressman Chris Van Hollen of Maryland, and Richard Kauffman, Chairman of Energy and Finance for New York. Congressman Van Hollen discussed the details of his federal Green Bank legislation. Commissioner Esty described how the Connecticut Green Bank is a new, more efficient government model that has facilitated private sector growth and can be replicated in any state. Richard Kauffman led a discussion on how to build strategic alignment between a Green Bank and existing state energy policies, incentives, and organizations.

For further details, please visit the Green Bank Academy website. And for a look at the content that was presented and discussed at the event, see this list of Green Bank Academy resources.

By Coalition for Green Capital

Zero capital gains and zero income tax should apply not only to small businesses, but also to all clean energy generation and energy efficiency investments. Like green banks, this policy could help drive much-needed capital to areas such as energy innovation, green infrastructure, and energy efficiency that will create jobs, minimize greenhouse gas emissions, and help America make the transition to a clean power platform.

By Reed Hundt

Modern life rests on two electromagnetic wave platforms: knowledge and power. The former comprises the mobile and Internet networks that have circumnavigated the globe and changed social and economic life, mostly for the better and absolutely forever, in just two decades. The latter consists of the electricity and transportation systems that produce the air pollutants which in the next two decades will destroy the global environment – unless the power platform changes as quickly and totally as the knowledge platform has done.

The power platform is where the knowledge platform was in 1993. From approximately that date, digitization, regulatory reform, and low cost capital changed the platform for all modes of information consumption in less than a decade. Emanating from the United States, digital mobile and Internet networks wrapped around the world, changing societies and economies in a few years. The hundreds of millions of dollars invested in the American move to the new knowledge platform meant that, in terms of the economy, everything supposed to go up (labor force participation, income, productivity) went up, and everything supposed to go down (unemployment, cost of capital) went down.

Now the power platform begs to be rebuilt quickly, producing cheap, clean, abundant energy instead of expensive, polluting, and inefficiently consumed power. As was the case in the 1990s, the move to a new power platform will result in full employment, reduced inequality in wealth and income, a rapidly declining deficit, and surpassing glory. Happily, technological solutions, legal reforms, and low cost capital now enable the public and private sectors jointly to build the power platform anew, with surprising swiftness.

To build the new power platform, America’s business and political leaders must move beyond the four principles that still support the old power platform: monopoly, regulation, stability, and the dominance of old technologies. The goal, as it was with the new knowledge platform, should be to delight the consumer. People want, and deserve, cheap, convenient, clean energy solutions to the questions of how to provide heat, light, air-conditioning, manufacturing, and transportation.

Twenty years ago, when the dominant communications service was the Bell system’s monopolized local voice business, that industry had the same assumptions of guaranteed revenue that characterize the electricity industry. Therefore, it had the same bias against change; the same premise that if a minority of customers moved to a different platform, then the majority would have to pay more for the old platform. But regulatory reform, first at the state level and then at the federal level under President Clinton, shattered the status quo. Technological solutions permitted wireless and Internet firms, armed with easy access to cheap capital, to disrupt the local monopolies. The new knowledge platform went from impossible to inevitable.

For the knowledge platform, the focus of concern for firms and government is now the demand side, instead of the supply side, as it still is for the power platform. For many years, customers have switched to mobile and data consumption, and fixed line revenues have been falling. One-third of U.S. households have abandoned traditional wireline telephone service totally in favor of wireless and the Internet. Almost everyone has a mobile device and more than two-thirds use the Internet. In response to changing demand, the old telephone companies, however, have changed as fast as or faster than the market. The former Bell companies have sold, merged, re-invested, and re-invented themselves. AT&T and Verizon now are the most important mobile firms in the United States. They dedicate their public policy lobbying not to seeking guaranteed profits on past investments, but instead they urged de-regulation so as to meet evolving demand as they think best.

The structure of the American power grid, which resembles the Bell network of more than two decades ago, contributes to the industry’s resistance to change. Power is generated and delivered in broad regional networks, the largest of which, PJM, spans 13 states and the District of Columbia. The utilities draw power from these networks. But local distribution of electricity is subject to state, as opposed to national, regulation of price and performance. As a result, potential rivals to utility-owned coal plants, such as solar and wind farms, must battle state by state to get access to end users.

To be sure, as far back as the Public Utilities Regulatory Policies Act (PURPA) of 1978, independent power producers have had certain rights to connect to these regional grids. The Energy Policy Act of 1992 gave power producers competing with utility-owned power additional opportunities to enter the market. The current boom in natural gas exploration and exploitation, as well as falling costs in solar and wind generation, could create a huge wave of independent power investment. But government must push much more aggressively to encourage investors to put money into new, cleaner generation facilities. If it did, it would find in the energy industry the same sort of leaders that AT&T and Verizon discovered when the need, and chance, to change came upon them.

In the past, government has often adopted tax and spending policies intended to bring new, affordable energy solutions to the market. Surely the most famous example was the Roosevelt Administration’s creation of the Tennessee Valley Authority in 1933. As a federal corporation, TVA enjoyed low-cost rates for its capital as well as benefitting from government spending, such as on nuclear power. Exactly as intended from its inception, TVA has translated these policies into low electricity prices: residents in its area pay about 20% less than the average American retail price.

Today, the United States should ask why government should not pay to replace the old, carbon platform with a new clean energy platform, just like TVA did in its region. Specifically, government could borrow the money to build the new platform, give the money to the utilities and investor-owned businesses that would do the work, and then get paid back over the years as customers paid for the cleaner, cheaper electricity. Government can borrow at the lowest rates of any institution. If energy companies enjoyed such a low cost of capital, and favorable tax policies, their consumers would not have to pay more for clean electricity solutions to the common problems of heating, lighting, and air-conditioning. Why then should politicians or businesses insist that clean electricity cost consumers more money?

The Recovery Act’s tax and spending policies in support of solar and wind investment led to a significant increase in renewable capacity. Benefitting from a combination of cash grants, tax credits, and interest-rate reducing guarantees, investors in clean energy projects were able to obtain power purchase agreements with electricity buyers at reasonable rates, while having a clear prospect of a reasonable profit. These deals demonstrated — if TVA, rural electric cooperatives, municipal electric companies and other forms of business had not done so amply enough — that lower cost of capital coupled with favorable tax policy can attract prodigious investment into energy projects.

For taxpayers to provide public goods at low prices to all consumers is hardly an unusual proposition. After all, government spending makes available to consumers at very low prices such services as education, highway transportation, police and fire protection, border control, retirement pensions, and health care for the aged and poor. It uses spending and tax policies to lower the price of home ownership, gas and oil,airline travel, sports arenas, milk, and corn. Why not ask government to buy the old energy assets at current value and pay for the new clean energy facilities? This action would not be meaningfully different than the exercise of eminent domain over real estate in order to build roads or other public structures. But let us put the possibility of such bold action aside. Even fairly modest government tax and spending policies, including low-cost financing support, can launch an ineluctable shift of the economy to the new, cheap, clean power platform.

Everything that should happen to the energy sector in the United States will happen – if only political and business leaders accelerate existing trends. To obtain consistent support from politicians and regulators for the move from carbon to clean, consumers, who include all voters in their ranks, should pay less for clean energy solutions than they would otherwise pay for power from the old platform. Falling technology and installation costs, sound tax policy, and green bank financing can assure that result, even as more coal-fired generation is turned off and more renewables are put in the place of the old, dangerous fuels of the past. By making people better off in their pocket books, the change to the new platform can be remarkably sudden and easy.

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