Looking to Fund a Clean Energy Project? You Need a Green Bank.

New state-run investment funds could create a real marketplace for alternative energy projects — and bring down costs for all of us.

National Journal
Nancy Cook
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Nancy Cook
July 17, 2014, 1 a.m.

Any­one in search of fin­an­cing for a clean- or re­new­able-en­ergy pro­ject need look no fur­ther than the state of New York. In Decem­ber 2013, New York launched its first-ever “green bank,” an am­bi­tious state-run $1 bil­lion in­vest­ment fund meant to help fin­ance the kinds of loc­al en­ergy-ef­fi­ciency and clean-en­ergy pro­jects that big­ger fin­an­cial in­sti­tu­tions typ­ic­ally over­look.

The goal of New York’s green bank is two­fold. First, the state hopes to cre­ate a genu­ine mar­ket­place for green pro­jects, sup­por­ted by the private sec­tor. Second, the green bank (and its fin­an­cing of pro­jects) aims to bring down the cost of these tech­no­lo­gies for res­id­ents. “It’s not just about tack­ling cli­mate change,” says Richard Kauff­man, chair­man of the New York State En­ergy Re­search and De­vel­op­ment Au­thor­ity. “It’s really about the over­all cost of en­ergy in the state.”

New York is not alone in latch­ing onto the idea of chan­ging the way it funds clean-en­ergy pro­jects. Con­necti­c­ut in­tro­duced a green bank in Ju­ly 2011, while of­fi­cials in Hawaii are in the pro­cess of start­ing one. Cali­for­nia, Mary­land, and New Jer­sey have also con­sidered or in­tro­duced sim­il­ar le­gis­la­tion or pro­pos­als. While the ex­act design of green banks dif­fers from state to state, the goal re­mains the same: to change the way loc­al gov­ern­ments fin­ance clean and re­new­able en­ergy. The green banks also seek to show loc­al fin­an­cial in­sti­tu­tions and in­vestors that money can be made in de­vel­op­ing this par­tic­u­lar mar­ket.

Re­think­ing the fin­an­cing mod­el of green en­ergy is par­tic­u­larly im­port­ant now, as re­search from of the Brook­ings-Rock­e­feller Pro­ject on State and Met­ro­pol­it­an In­nov­a­tion has shown. State budgets face in­creas­ing fin­an­cial pres­sures and don’t have the money to per­petu­ally fund grants for clean-en­ergy ini­ti­at­ives. In ad­di­tion, the fed­er­al gov­ern­ment’s stim­u­lus money from 2009 funneled more than $150 bil­lion to clean-en­ergy pro­jects from 2009 to 2014 through lend­ing, tax ex­pendit­ures, and loan guar­an­tees, Brook­ings es­tim­ates. As that cash works its way out of the loc­al eco­nom­ies, it leaves a void in the fin­an­cing of these pro­jects — a void that the New York green bank hopes to fill.

So far, New York has fun­ded its green bank by re­dir­ect­ing some ex­ist­ing state grant money and by rais­ing roughly $165.6 mil­lion through clean-en­ergy sur­charges on util­ity cus­tom­ers. Now, the bank has about $218.5 mil­lion on hand and ex­pects the rest of the money to come through by the end of the year to add up to a bal­ance sheet of $1 bil­lion.

By the end of 2014, the bank also plans to an­nounce some of the deals it has made with oth­er fin­an­cial in­sti­tu­tions to lend money for vari­ous pro­jects, says Al­fred Griffin, pres­id­ent of the New York Green Bank and a former banker for Cit­ig­roup Glob­al Mar­kets Inc. Of­fi­cials at the New York Green Bank were re­luct­ant to lay out the ex­act num­ber of pro­pos­als the bank has re­ceived in its first six months of op­er­a­tions; Griffin would say only that the pitches covered the gamut of clean-en­ergy tech­no­lo­gies in­clud­ing sol­ar, wind, stor­age, and en­ergy ef­fi­ciency. The one area that the New York green bank prob­ably won’t ven­ture in­to is the big trans­ac­tions that already at­tract fin­an­cing. “The large $100 mil­lion util­ity-scale pro­ject does not need our help be­cause big banks will em­brace those deals,” he says.

That’s the pur­pose of the New York green bank, to fin­ance clean-en­ergy deals that big­ger or more tra­di­tion­al fin­an­cial in­sti­tu­tions deem too small-bore and to prove the tech­no­lo­gies work well enough. Sup­port­ers hope that the fin­an­cing will help to cre­ate de­mand and, ul­ti­mately, bring down the costs. “The goal of the green banks is to lower the cost of clean en­ergy by lower­ing the cost of cap­it­al,” says Reed Hun­dt, CEO of the Co­ali­tion for Green Cap­it­al, a not-profit that ad­voc­ates for green banks at the loc­al level, and former chair­man of the Fed­er­al Com­mu­nic­a­tions Com­mis­sion. “You want con­sumers to buy more of it. We want to have a clean en­ergy sub­sti­tute for car­bon.”

Green banks ex­ist just at the state level for now. Demo­crat­ic Rep. Chris Van Hol­len of Mary­land has in­tro­duced fed­er­al green-bank le­gis­la­tion, but it has yet to re­ceive trac­tion in Con­gress. Pro­ponents are ex­cited about this new mod­el for fin­an­cing and pro­mot­ing clean en­ergy. “I think this a break­through for en­ergy strategy more broadly,” says Daniel Esty, a pro­fess­or at Yale Law School and former com­mis­sion­er of the Con­necti­c­ut De­part­ment of En­ergy and En­vir­on­ment­al Pro­tec­tion. “We’re try­ing to nor­mal­ize the flow of in­vest­ments in­to clean en­ergy and re­duce the cost of cap­it­al to the pro­jects,” he adds. Said like a good cap­it­al­ist — and a green ad­voc­ate.

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