How Green Banks Could Save the World

The funding organizations are catching on, and could help both the US economy and the planet.

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Nov 28 2016, 11:00am

Image: TaxCredits.net

With environmental groups worried that a Donald Trump presidency could slow the implementation of renewable energy in the US, some clean energy advocates are turning to green banks for funding.

What are green banks? They are finance companies that provide a funding mechanism for clean energy projects. Supporters view them as an alternative to government subsidies for green energy initiatives.

The whole idea behind green banks is that we can boost both the US economy and help reduce the nation's contribution to climate change, by providing intentional loans for environmentally friendly home and business upgrades. The upgrades ideally help consumers (through lowering power bills) and businesses (by providing installation jobs for these upgrades).

And with Republicans controlling Congress and the White House—not to mention President-Elect Donald Trump's inclusion of climate skeptics in his cabinet—environmentalists are looking for solutions other than federal action to speed up adoption of renewables.

Green banks are typically publicly run, usually through individual states, and invest public money in private green energy projects in the form of loans , according to the Coalition for Green Capital, a non-profit green capital consulting group. They sometimes funnel public money through private investors, who add their own capital, limiting the risk for the government agencies.

It's tough to get renewable energy projects funded by a traditional loan agency.

It's tough to get renewable energy projects funded by a traditional loan agency. Even adding on solar panels or high-efficiency water heaters are new enough to be an uncertain risk for traditional banks, so the high interest rate on the loan might not be worth the energy bill savings.

Green banks often used by businesses and homeowners to upgrade their respective buildings with solar panels, better insulation, and eco-friendly appliances, which range from as short as one year up to loans that are repaid over decades. Here's how they work:

-A government agency—usually a state—collects money in the form of specific taxes, energy bills (from publicly run utilities), and other methods, and sends that money to a green bank for investment. These banks are publicly run, usually by the state in which the revenue is collected. For example, the state-run Connecticut Green Bank provides loans within Connecticut for industrial, business, and residential green home infrastructure upgrades.

-The green bank can directly loan out that money.But depending on how it's set up, it may instead send that money to a private investment organization, which will go on to invest some of the firm's own capital, and then pay out a loan (alternatively, the firm may provide a credit enhancement so the customer can get a loan for a green energy project from a traditional bank or private investor).

-The customer pays back the loan with the agreed interest, and that money is reinvested in another green energy project.

Supporters say green banks are a way to remove government subsidies or grants from the green energy field, which have been slow to respond to the desire for renewable energy funding. Because the funding is repaid at the end of the loan, the money is recirculated and reinvested, unlike subsidies.

Also, these jobs can't be outsourced out of state or internationally because they're primarily construction-based jobs that involve installing hardware on local homes and businesses.

"The ways that we get energy to power our lives should be safe, clean, and accessible to all."

The Connecticut Green Bank, the first US-based green bank, generated 4,000 direct and indirect jobs during its first three years of business, according to the bank's 2014 annual fiscal year report.

Some in the financial sector aren't as optimistic about green banks' chances. Some say green banks are going to have a tough time staying profitable, especially since secondary markets don't exist yet to sell off debt on green energy projects like mortgages or car loans.

Green banks are also at a higher risk of being affected by customer defaults, especially due to this lack of a secondary market, according to a report on green banks by Booz & Company. However, green banks sometimes tie in their payments into publicly owned utility bills (for solar projects, for example) or through property taxes due to a lien on the building—although those are not the exclusive methods of payment.

So far, five US states and one county have their own green banks: Connecticut Green Bank, New York Green Bank, Hawaii Green Infrastructure Authority, California CLEEN Center, Rhode Island Infrastructure Bank and the Montgomery County Green Bank in Maryland, according to the Coalition for Green Capital. Maryland, Delaware, Washington D.C., Nevada, Virginia, Vermont, Massachusetts and Colorado are considering creating green banks.

There's also an effort to create a national green bank, but it's unlikely that a Trump Administration will bump this up to the top of their priorities list. The US Climate Plan National Green Bank proposes using a $10 billion federal investment, plus $100 billion in private capital, to create a renewing cycle of dollars that can be used for green initiatives.

"The ways that we get energy to power our lives should be safe, clean, and accessible to all," US Climate Plan, a climate advocacy organization, states on its website. "It's possible to do other good things while mitigating climate change, such as growing the economy."

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