[2] Green banks use public funds to leverage private investment in clean energy technologies that, despite their commercial viability, have struggled to establish a widespread presence in consumer markets.
[3] Green banks aim to reduce energy costs for ratepayers, stimulate private sector investment and economic activity, and expedite the transition to a low-carbon economy.
The United Kingdom, Australia, Japan, New Zealand, and Malaysia have all established national banks dedicated to leveraging private investment in clean energy technologies.
[7] A similar concept was incorporated as an amendment to the federal cap and trade bill, known as the American Clean Energy and Security Act, introduced in May 2009.
[9] When the 2009 cap and trade legislation ultimately failed to pass the Senate, green bank advocates in the US shifted their focus to the state level.
[13] The second report, titled "Delivering a 21st Century Infrastructure for Britain," was published by Policy Exchange in September 2009 and was authored by Dieter Helm, James Wardlaw, and Ben Caldecott.
However, several key elements distinguish green banks from other financing institutions: a focus on commercially viable technologies, a dedicated source of capital, an emphasis on leveraging private investment, and a connection with the government.
[21] Historically, the clean energy sector has relied on taxpayer-funded grants, rebates, tax credits, and other subsidies to drive market development.
While some private lenders do provide financing for clean energy projects, they typically impose relatively high interest rates and offer short loan tenors.
Such a cash flow structure is only feasible with loan terms that match the expected lifetime of the project's savings and interest rates that align with the associated risks.
Investments in building efficiency upgrades and rooftop solar projects are inherently small and geographically dispersed, with varying levels of creditworthiness among the parties involved.
To address the barriers to clean energy market development, green banks assist consumers in securing long-term, low-interest loans.
Loan loss reserves, overcollateralization, and subordinated debt can help alleviate concerns among private lenders interested in entering the market but apprehensive about the risks associated with developers, counterparties, or technologies with a less established track record in their respective jurisdictions.
Individual clean energy projects, which exhibit variations in credit quality, location, and technology, can pose a substantial underwriting cost for a bank and may not achieve the desired investment scale.
Bundling these loans into portfolios and selling them (or shares of them) disperses risk and creates scale, attracting a broader spectrum of private investors.
Securitization enhances market liquidity for clean energy project financing, ultimately leading to a decrease in the cost of capital for borrowers.
[2] The Connecticut Green Bank executed one of the initial securitization deals, selling 75% of its $40 million PACE portfolio to Clean Fund, a specialty finance company.
These structures enhance the security of debt service payments and enable lenders to offer lower interest rates for clean energy financing.
Green banks or their partners can consolidate consumer demand for clean energy projects and financing, reducing customer acquisition costs for contractors and providing scale for investors.
This activity allows green banks to offer more favorable financing terms, while utilities can access RECs in substantial quantities, potentially at prices below the market rate.
By enhancing transparency and resource accessibility, green banks bridge the gap between the supply and demand for capital in clean energy projects.
The green bank financing model efficiently manages limited supplies of public capital, allowing each dollar to be continually reinvested and utilized for multiple clean energy projects.
[2] A state or local government may impose a modest surcharge on energy bills within its jurisdiction and mandate that the funds raised through this charge be allocated to a green bank.
The bonding authority of a green bank provides debt investors with a secure stream of payments from an institution with a low risk of default.
[38] Community development financial institutions (CDFIs) can play a pivotal role in co-investing or providing initial capital for green banks.
SELF's commitment revolves around providing accessible and affordable capital for energy efficiency, resilience, and solar technologies, with a particular focus on serving low- and moderate-income (LMI) and underbanked communities.
[51] The CGB's funding is maintained through a systems benefit charge and revenue generated by Connecticut's participation in the Regional Greenhouse Gas Initiative (RGGI) trading program.
In its initial four years of existence, the CGB succeeded in stimulating $663.2 million in investments for clean energy projects, with three-fourths of these funds originating from the private sector.
The organization caters to a diverse range of real estate sectors, including affordable and market-rate multifamily, commercial, industrial, and institutional.
[3] The positive cash flow generated by GEMS aims to enable low-to-moderate income Hawaiians to access a market that has historically been out of their reach.