NY Green Bank Shows the Way for Private Capital to Follow

You are peering over the edge of the tallest diving board at your neighborhood pool, excited about the possibility of a jump into the refreshing water below. You take a few steps back and then run forward but you stop short, not quite able to summon the will to take the leap. What if you belly flop and your friends laugh at you? What if the water is too cold? As you consider all the ways this simple action could go wrong, your friend whooshes past you on the diving board, taking a big confident leap high into the air, and enters the refreshing water with barely a splash. After that, it’s easy to take a leap of your own, and you spend the rest of the day diving and swimming with your friends.

If you are a private sector lender, the friend that so gracefully sprinted by you and led you into the water is a green bank. Green banks exist to fill gaps in the financing markets for clean energy. If the pace of investment into clean energy markets is not flowing at the rate necessary to address the climate crisis, you can bet that a green bank can show up and accelerate that pace. 

Spoiler alert: there’s plenty of work for green banks to do. According to researchers from Princeton University, the United States alone requires $2.5 trillion of investment into clean energy and energy efficiency above business as usual in the next ten years alone if we want to have a shot at net-zero emissions by 2050.  On top of this, the patterns of new technological rollouts throughout the 20th century demonstrate that a business-as-usual approach to deployment will result in the benefits of the new technology (in this case dollar savings and cleaner air to breathe) will not accrue to traditionally disadvantaged and underserved communities unless there is an intermediary whose job it is to ensure these communities see these benefits. Again, this is a role that green banks play. 

The latest and greatest example of green banks opening up investment opportunities for private sector lenders came this summer, when NY Green Bank raised $314 million by selling the right to receive loan payments on a portion of its portfolio to Bank of America. For those who don’t live and breathe finance every day, this is a process known as securitization, where a buyer (Bank of America in this case) purchases assets (loans receivable) from the seller, NY Green Bank, in exchange for cash. This is the largest ever private capital raise by a green bank in the United States, and it demonstrates the quality of the loans on NY Green Bank’s balance sheet. Since its creation in 2014, NY Green Bank has built out a large portfolio of loans across sectors and technologies, most notably including $385 million in loans to community solar projects in New York State, effectively creating the market for these types of deals in the state. 

The types of projects that NY Green Bank has lent to are solid, credit-worthy projects that have been unable to access private capital markets at affordable rates. Affordably priced private capital has not flowed to these projects for the same reason that you just couldn’t quite take the jump off that diving board. Because green banks like NY Green Bank are mission driven, they can set that leadership tone, demonstrate the attractive nature of less-well-understood clean energy financings, and pave the way for private lenders to follow their lead, which is what is happening in this example. 

Private sector lenders didn’t make the initial loans that NY Green Bank made because they weren’t traditional transactions. They support sustainable infrastructure project types that had not yet been financed at scale, and so, for private sector lenders, there was some concern about whether or not the projects would be able to meet the level of return to make the project worthwhile (known as an internal rate of return). In short, there were loans to good, solid projects to be made, but it was unclear to private sector lenders whether the loans were profitable enough to justify making. Because NY Green Bank has financed these loans and demonstrated that they are in fact profitable enough, Bank of America  viewed the performance of NY Green Bank’s loans and determined that the water is pretty warm and it’s time to dive in. And it’s not just NY Green Bank proving that these investments are viable: 99.62 percent of green bank loans in the United States (measured by dollar value) have been repaid to their green bank lender. This means that green bank loans by dollar amount have a default rate of 0.38 percent, which any finance expert would tell you is great performance.

This $314 million infusion of cash will allow the organization to continue to invest in new projects in illiquid financing markets (meaning that currently  there are few lenders willing to offer appropriately priced capital for these projects)  in New York State, including in disadvantaged communities. Many projects in low-income communities, communities of color, and climate-impacted communities do not have access to the type of affordable financing that can make these projects work to lower energy costs to the end users. 

That is where NY Green Bank is stepping into the void, starting with a strong focus on affordable housing electrification in the state. Just like it dove into the New York State community solar market in the 2010s, NY Green Bank is jumping confidently into the pool by offering financing that delivers benefits to disadvantaged communities and aims to bring its private sector counterparts in along with it.

This type of transaction could become routine with the creation of a national green bank, known as a Clean Energy & Sustainability Accelerator. This Accelerator would, well, accelerate the pace of investment into clean energy technologies around the country, just like we’ve seen in New York. And by requiring standardization in green bank loans funded by the Accelerator, we will see securitizations along the lines of what NY Green Bank has achieved. The Accelerator is currently included in the House and Senate budget resolutions that could become law this fall as part of a budget reconciliation bill. If an Accelerator is funded at $100 billion, which is the amount allocated in the House and Senate bills led by Representative Debbie Dingell and Senators Ed Markey and Chris Van Hollen, the Accelerator is projected to create four million jobs in four years and generate $880 billion of total investment into clean energy. This latest NY Green Bank transaction gives a taste of what could be accomplished with a fully funded Accelerator — and that would make a big splash in finally tackling the climate crisis.


1 https://netzeroamerica.princeton.edu/img/Princeton_NZA_Interim_Report_15_Dec_2020_FINAL.pdf

2 https://greenbank.ny.gov/-/media/greenbanknew/files/2020-21-NYGB-Impact-Report.pdf

3 https://coalitionforgreencapital.com/wp-content/uploads/Impact-Investment-Jobs-and-GHG-Impact-1.pptx

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