Clean energy finance banks or “Green Banks” are shaping up to be the latest in clean energy finance technology, as convincingly set out in a report issued recently by the Brookings-Rockefeller Project on State and Metropolitan Innovation.
The Green Bank opportunity has emerged just as the US clean energy industry is poised at an important crossroads – the industry is maturing, creating jobs and cutting costs but faces challenges from inconsistent policy support, political attacks and low natural gas prices.
Led by wind, the renewable energy industry is a job creator. NRDC was also busy – we delved into the contribution of wind on US jobs in two reports, one of which demonstrates that just a single 250 MW typical wind farm creates 1,079 direct jobs over the lifetime of the project. The wind industry now employs 75,000 Americans and U.S. companies and their workers produce approximately 65 percent of every wind turbine part.
However, much of this economic activity is at near term risk if Congress cannot find a way to extend the production tax credit (“PTC”) this year.
Even if the PTC is extended, its duration is uncertain, and for the sector to thrive, we must create new flexible solutions that can adapt to changing conditions over time. State-level Green Banks are one such solution.
Simply put, a Green Bank is a public-private financing institution with the authority to raise capital through various means, including issuing bonds, selling equity, legislative appropriations, dedication of utility regulatory funds, or foundation grants for the purpose of supporting clean energy and energy efficiency projects through financing tools such as loans and loan guarantees, often at below commercial rates.
A green bank can be formed at the federal or state level – but in the US, as is the case in most other clean energy policy innovations, the states have been out in front.
NRDC is involved in developing Green Bank burgeoning efforts in multiple states but Connecticut is the early leader with its recently constituted Clean Energy Finance and Investment Authority.
How do Green Banks work?
As mentioned above, Green Banks obtain low cost capital and then use that cheap money to support clean energy projects a cost that is lower than purely private sector transactions, resulting in significant savings in the cost of delivered clean energy (15-20% in some instances, according to the report).
There are very successful precedents for energy and infrastructure banks in both the US and abroad. Notably in the US, The Export-Import Bank of the United States (Ex-Im Bank) and the Overseas Private Investment Corporation (OPIC) have been financing power and other infrastructure overseas for decades and have yielded positive returns to the taxpayer. The model has also been successfully deployed in Germany through development bank KfW and a national Green Bank is currently being launched in the United Kingdom.