Green Banks / by Norris McDonald

Center Green Carbon Bank

Center Carbon Mercantile Exchange

One permutation of the green bank is a public-private institution that helps private-market participants reduce greenhouse gas emissions through projects by stepping in to support projects that might get a pass from a traditional lender. 

State-formed green banks are creating new ways to finance renewable energy and energy efficiency projects that previously have gone under-served.

One example is NY Green Bank, a $1 billion state-sponsored entity that mobilizes clean energy investment and projects within New York state.

NY Green Bank deals with providing financing to developers of solar projects that are selling to commercial, industrial and other institutional organizations. It also deals with providing financing to commercial and multi-family building owners  seeking to make renewable or energy efficiency improvements. 

The NY Green Bank shows that despite President Donald Trump’s support for fossil fuel projects, state and municipal governments are playing a larger role in furthering clean-energy policies and reducing greenhouse gas emissions. In addition, they support New York Gov. Andrew Cuomo’s Clean Energy Standard, which requires that 50 percent of New York’s electricity come from renewable sources by 2030.

In New York, the green bank projects that the funds ultimately will create between $1 billion to $1.4 billion in investment in clean energy projects in New York state.

Green banks use public dollars to encourage deeper private investment in clean energy. And they can provide financing in different ways, including through credit enhancements, directly investing in clean energy projects and even originating and financing loans through a process known as warehousing.

Connecticut established the first green bank in the United States in 2011. Today there are six in states including Michigan, Hawaii, New York and Rhode Island.

Connecticut Green Bank, the oldest state-formed U.S. green bank, has created over $1 billion of total clean energy investment in the state, using less than $200 million of public capital for project investment. By the end of the 2016 fiscal year, the green bank had deployed $164.9 million in public capital and leveraged $755 million in private capital.

Green banks exist to fill financing gaps in the clean energy marketplace that exist, in part, because of a lack of standardization in the process. That fragmentation, along with the relatively short track record for such investments, may make it difficult for traditional commercial banks to offer developers terms that are economically viable. This is where green banks step in and can provide financing.

According to the Coalition for Green Capital (PDF), a green bank may provide debt or equit in a project, which can then be paired with a private investment. For example, a green bank and a private investor could both take a 50 percent debt stake in a specific project or installation.   (Green Biz, May 7, 2017)