Time for a Green Bank?

The concept of a U.S. Green Bank to finance renewable energy development in the United States has been banging around the halls of the U.S. Congress at least since 2009, when a proposal for the bank died with controversial energy legislation. For the past year or so, partisan bickering in Washington over the national debt and over any form of tax increase has left solar finance supporters on the sidelines. But recently, the Green Bank idea – and a competing form of financing institution, the Clean Energy Development Authority – is again being floated among Republican and Democrat legislators alike, both as a solution to job creation and as a contributor to a long-awaited sound energy policy.
With a nominal infusion of about 20 billion U.S. dollars (USD), a Green Bank could leverage its financial support into USD 200 billion worth of solar or other renewable projects, supporters say.
Such a portfolio of projects could have the impact of adding one million jobs for a year, they add, or could mean the retirement of the one-third of the coal-fired plants in the country responsible for the worst air pollution produced by coal.

According to research by the law firm Levin Mintz, lenders to U.S. renewable energy projects have largely been foreign banks and insurance companies and their affiliates. Of the 26 main players active in the market during 2010, the study notes, just six are U.S.-based: Citibank, John Hancock, Key Bank, Morgan Stanley, Prudential and Union Bank. The authors comment that the strong presence of foreign banks is largely a result of foreign lenders having considerable experience in the renewable energy sector.
U.S. legislators would have to look no further for inspiration for a Green Bank than across the pond to the British, who are now hiring staff for the first Green Investment Bank in their country, with an initial USD 4.8 billion war chest. A host of other countries have national development banks which lend to the renewable sector; lenders from Brazil’s Banco Nacional de Desenvolvimento Economico e Social, for example, were present at the recent Intersolar show in San Francisco, “learning what their solar industry will need once enabling legislation is approved later this year.” Perhaps the leader of sovereign investors in solar is the Chinese government, which has been shoveling tens of billions of dollars into their solar industry for years now.
While the U.S. Department of Energy has done much over the past three years to support solar energy through loan guarantees and grants, there has not been a stand-alone institution charged with a Green Energy mandate. “Without a financing tool like the Clean Energy Development Authority (CEDA), our clean energy economy will stall, while other countries continue plowing ahead,” said Richard W. Caperton, a senior policy analyst at the Center for American Progress, in Washington, D.C., in July, when the Senate Energy and Natural Resources Committee passed the Clean Energy Financing Act of 2011, which would form the CEDA, under the wing of the Department of Energy (DOE). “The China Development Bank Corporation has plans to finance more than USD 30 billion in clean energy each year going forward, while the U.S. government risks providing zero financial support if CEDA is not signed into law,” he warned.
Part of the urgency for forming either a Green Bank or the CEDA is that some of the loan guarantee and lending programs at DOE are set to expire soon. “With the DOE cash grant program going away in December, it will really hurt residential and commercial solar energy projects,” says Bret Prior, a Senior Analyst at GTM Research, in Boston. “If the goal is to get as much solar in the United States as soon as possible, you need a low-interest-rate financing mechanism to make that happen, and the Green Bank could fill that need,” he says.
Needless to say, the solar industry in the United States has been behind the idea of a Green Bank for years. The SolarEnergy Industries Association (SEIA), in Washington, has since 2009 “support[ed] the creation of a Clean Energy Bank as an independent, wholly owned government corporation to support renewable energy industries via direct loans, loan guarantees, insurance and other credit mechanisms,” the Association’s white paper on the topic indicates. “The bank should have at least USD ten billion in initial funding but should also be capable of selling bonds to increase its resources to USD 100 billion,” SEIA indicates. Such resources “could cut the cost of financing for a renewable energy project in half,” the organization reckons.

Non-tax funding source is key

While the Green Bank could evolve in the form of CEDA, it may emerge as more of a real bank after all. A new proposal has arisen to fund the bank through a share of repatriated funds U.S. corporations currently park abroad. One Congressional champion of this idea is Congressman Chris Van Hollen, a Democrat from Maryland, who in 2009 urged President Barack Obama to create a “Green Bank, separate and apart from the existing bureaucracy of government.” Angling at that time to get Obama to include the Green Bank in his policy-defining state-of-the-union address, Van Hollen suggested: “A Green Bank could be capitalized on a one-time basis with USD 20 billion and never need another dime from government. With an annual budget of less than 200 million dollars and several hundred employees, it could cause more than 200 billion dollars in new private sector investment, propel economic growth and create more than two million good-paying jobs over the next three years.”

Streamlined operations

Apart from relative independence from other federal agencies, a Green Bank would need to operate more efficiently and more rapidly than the DOE has, several sources agreed. “A Green Bank could be a powerful driver in terms of accelerating growth in the solar energy sector, but it would need to be flexible and not have a narrow or rigid mandate that would require having to go to Congress to change,” says Jonathan Plowe, head of new energy and infrastructure solutions at BofA Merrill Lynch, New York. “The bank should be capable of providing loan guarantees, funded loans, and equity investments, with more of a full suite of banking products,” he adds. “The loan guarantee by itself is a powerful tool; one billion dollars in credit guarantees can drive 20 billion dollars of private sector funding if projects are 50 percent leveraged,” he notes.

NADB an early model

While it only serves the U.S.-Mexico border region 100 kilometers to the north and 300 to the south, the North American Development Bank (NADB) has been focused on solar and other renewable energy for well over a decade. “We were really one of the first Green Banks,” says Gerónimo Gutiérrez, Managing Director of the North American Development Bank, based in San Antonio. Formed after the ratification of the North American Free Trade Agreement, the bank has three billion dollars in capital, equally owned by the U.S. and Mexican governments. “Over our existence since 1994, we have been involved in 150 projects in environmental infrastructure, providing USD 1.3 billion in loans and grants for projects with a total leveraged value of USD 3.3 billion,” he notes. One solar project recently given bank financing is a 77-million-dollar project in Imperial Valley, California. Gutiérrez: “We have several more solar projects under study.”

States may lead bank formation

Given the persuasiveness of Tea Party dogma, which equates new taxes to mustard gas, some analysts say no new federal bank can be created by the current Congress. Instead, individual U.S. states will need to take the lead until such mass has accumulated that a federal oversight bank will be perceived to be necessary. Voilà: in June, Connecticut’s Governor Dannel Malloy guided the creation of the Clean Energy Finance and Investment Authority (CEFIA) in his state. Commonly referred to there as the Green Bank, the authority will administer some USD 50 billion during its first year of operation. Most noteworthy in terms of the bank’s source of funding is that no new taxes are to be levied, rather, a pre-existing tax in residential and commercial electric bills now will flow to the bank.
The question now is not “will” the Connecticut model be adopted by other states, but “when?” says one board member of CEFIA. “Ten states already have approached us asking for help in drafting plans for a similar Green Bank,” says Reed Hundt, the CEO of the Coalition for Green Capital (CGC), a non-profit organization based out of Washington, DC. The CGC exists for the purpose of designing, developing and implementing green banks at the state, federal, and international level. “We are just getting started with these states, but it only took about six months for the Connecticut project to reach fruition,” he says.
Other analysts agree that if a national Green Bank is still ahead of its time, states can still drive solar markets in a number of ways. “If a Green Bank cannot be created at the national level, the same function could be done at the state level,” says Prior. “Perhaps the preferred route is the California model, where utilities are told that they must procure X percent of their energy from renewable sources,” he adds. “Then if a solar project is not economic enough for bank financing, a utility still may pay more to get it done,” he explains.

Private sector banks warm to solar

Complaints that the U.S. private sector banks are slow to embrace solar investment may be true in a general way. But a host of banks are already powerhouses in solar investment. San Francisco-based Wells Fargo, for example “has invested over USD 480 million of tax equity in solar projects, including more than 200 commercial-scale solar PV projects and a utility-scale concentrating solar thermal power plant,” notes the company’s most recent Environmental Finance Report, of January 2011. “We have been providing capital for solar for almost five years, and are consistently investing in the U.S. market – only the U.S. market thus far, so we continue to invest through these difficult times,” confirms Barry Neal, Director of Environmental Finance at the bank, in San Francisco.
Similarly BofA Merrill Lynch has a 20-billion-dollar initiative underway to facilitate renewable energy development, Plowe notes. The bank’s latest large solar venture is the 2.6-billion-dollar Project Amp, which is expected to generate 733 megawatts of distributed solar energy across 28 states and create the equivalent of more than 10,000 full-year jobs. The project won a DOE loan guarantee of USD 1.12 billion, through the agency’s Financial Institutions Partnership Program (FIPP). Equity financing will come from NRG Energy Inc., of Princeton, New Jersey, and from Prologis Renewable Energy, based in San Francisco.