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Clean energy bank could drive $200 billion in investment, generating over 2 million jobs

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"Clean energy bank could drive $200 billion in investment, generating over 2 million jobs"

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A little-discussed provision in the clean energy bill, the Clean Energy Deployment Administration, would have a huge impact on the U.S. clean tech industry, as this guest post by CAP’s Jake Caldwell explains.  Yet the EIA didn’t even model the clean energy bank in its recent climate bill analysis (see “Despite its many flaws, EIA analysis of climate bill finds 23 cents a day cost to families, massive retirement of dirty coal plants and 119 GW of new renewables by 2030 “” plus a million barrels a day oil savings“).  Combined with all the other provisions in the bill, plus the stimulus and the Administration’s other clean energy and climate policies, Obama would easily meet his promise of $150 billion in U.S. government investment in clean energy over 10 years — and in fact will ultimately drive some $100 billion a year in total U.S. investment in clean energy.

Introduction

The United States must build and deliver clean energy today to create jobs, lower energy costs, and strengthen our economy. The establishment of a federally owned, independent, not for profit Green Bank””formally called the Clean Energy Deployment Administration, or CEDA, in legislation now before the Senate””will spur private-sector investment in innovation and American ingenuity to help end our dependence on oil, and help diversify our nation’s sources of energy to lower prices over the long term while also confronting global warming. The Green Bank will improve our global economic competitiveness, too, by making the United States a worldwide leader in the manufacture and deployment of clean-energy technology.

The creation of a Green Bank will encourage a long overdue integrated and strategic approach to clean-energy innovation, efficiency, and deployment in the United States. In combination with Senate action on clean energy””legislation that provides incentives for the research, development, and deployment of clean-energy technologies, and a market-based pollution-reduction program that reduces greenhouse gas emissions and reinforces a predictable price signal on carbon””the Green Bank will open credit markets, motivate private business to invest again, and create good, clean-energy jobs here at home.

In partnership with the private sector, the Green Bank will enable innovative, commercially viable clean-energy technologies in such areas as wind, solar, geothermal, advanced biomass, increased efficiency, and transmission infrastructure””all to be deployed on a large scale. The construction and actual deployment of these clean-energy technology projects is vital to a clean-energy future.

What’s more, clean energy delivers long-term job growth and holds tremendous new job-creation potential, particularly in the manufacturing sector. A recent report from the Center for American Progress and the University of Massachusetts Political Economy Research Institute notes that $150 billion per year in clean-energy investment can generate a net increase of 1.7 million jobs.

In short, the Green Bank can encourage the rapid deployment of clean energy and ensure that lower energy costs are passed on to consumers. In addition, the Green Bank can act as a bulwark against higher energy costs associated with volatile fossil fuel prices.

Costs and benefits of the Green Bank

A Green Bank funded at $7.5 billion could fund generation of 60 to 80 gigawatts of clean energy over a period of 20 years, or 3 to 4 GW annually. The result: Our national security will be enhanced by reducing our dependence on foreign oil. A fully capitalized Green Bank at $50 billion could:

  • Provide enough electricity to power approximately 22.9 million cars per year
  • Decrease gasoline consumption by an incremental 12.6 billion gallons per year
  • Decrease oil consumption by an incremental 642 million barrels per year, or 1.8 million barrels per day

In the past, Congress has encouraged private-sector equity investments in wind, solar, and other clean technologies through tax credits. Equity investments are important, but the deployment of major clean-energy projects will also require significant loans and low-cost debt financing. The Green Bank will marshal a variety of well-established financial tools and incentives to enable the federal government to enlist the private sector to increase the amount of debt capital available at lower rates to clean-energy projects. A Green Bank can vastly expand the tools available to lenders by providing direct support, such as direct loans, letters of credit, and loan guarantees, and indirect support, like authority to issue bonds, purchase debt securities, and other financial products.

In a clean-energy project, the Green Bank can potentially reduce the cost of debt by half””to about 4.5 percent in today’s credit markets from around 8.5 percent without federal support. As the cost of debt is reduced, projects can still provide a 15 percent return on equity and meet debt coverage ratios without an increase in electricity rates. The upshot: By lowering the cost of debt, the Green Bank allows utilities to provide the same levels of electricity from clean-energy sources without passing on any additional costs to the consumer.

The result will jumpstart business investment, increase capital at reduced loan rates, lower energy prices to consumers, and spur the construction and operation of more clean-energy technology and energy-efficiency projects throughout the country.

Jumpstarting private-sector investments in clean energy

A Green Bank is essential because many clean-energy technologies face several unique obstacles along the path to large-scale deployment and then to the delivery of clean energy in our homes. Traditional banks and commercial lenders are reluctant to loan to many of these clean-energy projects with limited track records in the marketplace.

And many existing off-the-shelf clean energy and efficiency technologies are abandoned due to a lack of funding as they attempt to be deployed at larger scale.

Indeed, renewable energy investment dropped precipitously in the first quarter of 2009, the period for which complete data are available, to $500 million compared to $2 billion in the fourth quarter of 2008 and $5 billion in the first quarter of 2008.

In order to maximize the leverage of private capital, the Green Bank should have at its disposal a wide range of direct and indirect support tools and incentives to encourage loans to facilitate deployment of clean-energy technology. These direct and indirect incentives tend to reduce the risk to lenders so they are encouraged, in turn, to offer better loan rates to potential clean energy and energy efficiency projects.

Under current Senate clean-energy legislation, the Green Bank will be capitalized with $10 billion. This capital can be leveraged at the standard 10-1 ratio to provide loan guarantees in support of $100 billion in private-sector investment in clean energy. The private sector can also provide an additional $100 billion in equity. As a result, a $10 billion capitalization of the Green Bank translates into $200 billion available for in clean-energy investments.

The surge in capital will allow clean-energy projects to be deployed at the operational and commercial level in a shorter timeframe than is standard today. As clean-energy and efficiency technology is deployed at a larger scale, valuable experience and cost savings will be gained, and more and more clean energy will be delivered to American homes at lower prices in every region of the country. The United States will reclaim its rightful place as a global leader in clean-energy technology.

The Green Bank creates clean-energy jobs

As a nation, we can and must do better at nurturing and growing our clean-energy sector and clean-energy jobs, because competitors in other countries are already filling the void. A Green Bank will ensure the United States is a job leader in the clean-energy technology growth industry of the future.

Clean energy has the potential to create significant jobs in the manufacturing sector. A Green Bank will provide low-cost capital to help build clean-energy manufacturing facilities, create long-term jobs in the United States, and deliver clean energy at lower cost to consumers. As noted above, a recent Center for American Progress-University of Massachusetts Political Economy Research Institute report demonstrates that $150 billion per year in clean-energy investment can generate a net increase of 1.7 million jobs.

A significant portion of these jobs will occur in the struggling construction and manufacturing sectors. Moreover, the CAP-PERI report also notes that clean-energy investments generate roughly three times more jobs than an equivalent amount of money spent on jobs related to carbon-based fuels.

A Green Bank can ensure the clean-energy manufacturing sector is able to overcome several challenges, including securing access to capital when prospective lenders are reluctant to provide financing to manufacturers producing clean-energy technology. Frequently, clean-energy businesses are small, innovative, and highly specialized. They often have limited collateral and revenue and face cost uncertainties, as supply and demand for finished product fluctuates. The Green Bank can provide stability and incentives to leverage private capital, raise the comfort level of prospective lenders, and allow manufacturers to meet their goals and set us firmly on the path to long term job growth and a clean-energy economy.

The Green Bank can lower carbon emissions to reduce global warming

The establishment of a Green Bank will provide a coordinated, strategic approach to clean-energy innovation and energy efficiency in the United States, enhance federal government and private-sector complementary efforts to reduce carbon emissions, and deliver clean energy to American homes in as short a timeframe as possible.

The establishment of an independent Green Bank, governed by a board of directors and comprising additional members with clean-energy and energy-efficiency financial expertise, will make a significant contribution to the nation’s overall energy innovation strategy and project funding decisions. Importantly, the Green Bank will not place the federal government in the role of picking winners and losers in specific clean technologies. Rather, the Green Bank would establish broad, overarching performance-based goals such as the deployment of clean energy that diversifies our energy supply, and reduces or sequesters greenhouse gases.

The Green Bank will work in an integrated manner with clean-energy and climate-change legislation that promotes clean energy, energy efficiency, limits on global warming, clean-energy jobs, and transition investment to ensure U.S. competitiveness. The Green Bank has the potential to reduce carbon emissions by an estimated 22 to 59 million metric tons a year, which would be the equivalent of:

  • Taking between 5 million and 13 million cars off the road every year
  • Neutralizing the carbon emissions of between 15 and 39 power plants every year

The Green Bank also can help meet the demand created by a national renewable electricity standard, and it will encourage the deployment of a smart grid and modernized transmission to ensure supply comes from optimal locations throughout the country. In addition, energy-efficiency projects financed by the Green Bank would include any project that results in a net reduction in energy use required to achieve the same level of service prior to their application. Such projects would include smart-grid technologies and energy-efficiency gains in existing buildings and new construction.

Smaller projects could be aggregated so as to attract more financing in an area where it has been difficult to secure financing in the past. As noted above, credit support from the Green Bank includes a wide-ranging toolbox (including direct loans, letters of credit, and loan guarantees) that will assist states, localities, and the private sector in rolling out innovative mechanisms to finance building energy efficiency retrofits at scale. This includes municipal bonds, utility loans with on-bill repayment, and increasing commercial loans for retrofits, as the Green Bank effectively lowers the uncertainty and technological risk associated with a lack of historic performance data.

All of these goals would be interwoven into expedited funding decisions as projects were evaluated for viability and creditworthiness by a professional and experienced staff. In sum, the Green Bank will provide the means to allow us to meet our most ambitious carbon reduction targets while promoting clean-energy jobs to ensure U.S. industry and workers will be leaders in the clean energy technology future.

Download this memo (pdf)

This post was first published here.

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4 Responses to Clean energy bank could drive $200 billion in investment, generating over 2 million jobs

  1. pete best says:

    The Antarctic and Greenland are starting to crumble at 390 ppmv. If Greenland began to form itse ice sheets at 400-425 and the Antartic its at 425-475 (450 mean) then that is only 30 years away at present emission levels of 2 ppmv per annum. In order to get down to 1 ppmv per annum and give us some 30 years breathing time we need to halve our emissions NOW!! All of these projects are helpful but the USA uses around 7.3 billion barrels per year. 600 odd million is useful but only represents 8% fall in usage in the USA alone or 2% of global usage which is very well done but not anywhere near enough.

    We have to have projects all over the place and a strategy for global emission reductions. How do we know that if the USA reduces its gasoline usage by 50% that India and China will too ? Its not knowable now is it unless agreements can be agreed.

  2. R says:

    Thanks for the interesting post. Could you please be more specific about how the Green Bank would “reduce the cost of debt by half — to about 4.5 percent in today’s credit markets from around 8.5 percent without federal support”? I’d particularly like to understand the extent to which this comes from correcting market failure versus explicit or implicit subsidies.

    You mention “direct support, such as direct loans, letters of credit, and loan guarantees” – is the idea that the Green Bank will subsidize clean energy by either giving loans at below-market rates or guaranteeing risky loans that the private sector would not otherwise underwrite?

    You also mention “indirect support, like authority to issue bonds, purchase debt securities, and other financial products” – how would this would dramatically change the interest rate at which clean energy projects are able to capture financing from debt markets (versus other companies which don’t have investment-grade credit ratings)?

    Of the 4% improvement, what is your sense of how much comes from direct and indirect support, respectively?

  3. Jay Turner says:

    The photo with this post raises an interesting question: Can we side-step the renewable-energy delivery logjam by co-locating wind, solar, biomass, or other renewables with existing fossil fuel plants to make use of their grid connection? Would that be an avenue for lowering a plants GHG emissions or getting emissions credits? It would be good if we could persuade existing power providers to diversify into renewables. Once they have to shut down their old generators, the grid connection is still a tremendously valuable commodity that could be used to get renewable power onto the grid without the expense or delays involved in building entirely new transmission lines.

  4. T, Caine says:

    For as much of a supporter as I am for further financing of renewable energy and green projects, it seems like the green bank scheme is still a bit unclear. So the bank is funded with $10 billion from Congress. Sounds simple enough, we’ve become good at writing checks. This money can then be leveraged 10-to-1. So where is the debt coming from that provides the other 90% of $100 billion?

    Is it coming from the Fed or the Treasury? If so, we’re basically just printing more money or adding more debt for the sake of building green projects. Why would Congress “fund” the bank with $10 billion if the Treasury is simply going to have to back the debt of the rest? If it’s coming from the government, we simply don’t have it so it’s being covered by taxpayer dollars in the end anyway.

    If its coming from private investors (along with the other purported $100 billion) then why isn’t this money being invested in this arena already? How can the creation of an organization really cause the private sector to suddenly dramatically increase its investment in the green sector? Are their investments/debt guarantees in turn guaranteed by the Fed/Treasury (back to government debt again.) If the market was that attractive, it would not need funding help.

    Let us remember that we are talking more about dipping the government into the venture capital arena rather than banking. These are leading edge technologies or startups that may not even be turning a profit. The reason why venture capital is based on equity rather than debt is because new innovation-based companies often have no way of servicing the debt (which investors helping to finance the bank would want in lieu of an equity stake.) Do we really want to encourage the government to become an equity investor–a task probably more suited to the private sector. If not, it can only lend to companies that make enough money to provide cash flow for the bank/financiers.

    The government already is an instrument for promoting green innovation. This is why we have grants and government sponsored research. This idea really needs some legs before it can become more than just increasing national debt to fund more energy projects.