Last month, dignitaries from 175 countries applied the final seal of approval to the Paris Climate Agreement, setting a course for a low-carbon future. Experts say that, to meet the goals laid out in the pact, investors will need to funnel $1 trillion a year into clean energy and energy efficiency. It should come as no surprise that clean energy companies have become such hot properties. Last year saw historic investment in renewables worldwide. Tesla’s recently-announced Model 3 broke records by garnering $14 billion in promised sales in a single week. But not every clean energy venture is ready for prime time, even those with the potential to be transformational. Some need a little help winning investors’ affections. Meet the Green Bank, the hero of our story and a hopeless romantic who still believes in true love. A Green Bank acts like a matchmaker, helping commercial investors fall for clean energy projects — risky though they may appear — by revealing their unseen potential. Sure, it’s hard to imagine a bank could have feelings, much less experience the heady intoxication of love.
But a Green Bank doesn’t work like your local savings and loan, taking deposits and issuing credit. A Green Bank is a public institution that invests in solar, wind, energy efficiency, and battery storage. And it’s a lover at heart.
A Green Bank can see the “prom king” hidden inside every “chess club president.” It searches for renewable energy projects a commercial lender might overlook — unsexy, unkempt clean energy ventures looking for love.
When a clean energy startup gets weary — and they do get weary — what they need is a little tenderness. Legal tender, that is — money to get their operation off the ground. Green banks help clean energy firms access capital by making them more attractive to commercial lenders.
Commercial banks want certainty, the certainty that the time and money invested will pay dividends. When they see certainty, they fall in love. Experts say the key to providing certainty and spurring investment in renewables is reducing risk. A Green Bank can reduce risk in any number of ways:
- Insuring a loan from a commercial bank, eliminating the risk that a bank will lose money betting on clean energy.
- Joining with a commercial bank to fund a clean energy project, allowing the bank to profit from the investment without going all in.
- Funding a small renewable power scheme, helping it reach the scale needed to earn the notice of a commercial bank.
Once the Green Bank has done its magic, the clean energy project will be irresistible to private lenders.
So how does this work in practice? Let’s take a look at the New York Green Bank. In October, the New York Green Bank announced investments in Level Solar, a Long Island startup that installs residential solar panels. Level owns and operates the panels and sells the power generated to consumers for less than the current utility price. For the consumer, it’s an easy yes. Homeowners don’t pay any of the upfront costs and they see instant energy savings. At its inception, Level Solar held little appeal for a commercial bank. A bank must expend time and energy to determine the risk of a clean energy project, and there is no guarantee the venture will scale up. Banks have streamlined the process for other kinds of small loans — cars, homes, etc. — but renewable energy remains uncharted territory for commercial investors. Until lenders develop a simple, efficient means of assessing the risk of small-scale renewable energy schemes, it’s not worth their time. “It’s difficult for bankers to allocate a lot of time and energy to figuring that out when they don’t have certainty that, when they put the structure in place, there are actually going to be a lot of projects,” said New York Green Bank President, Alfred Griffin. The NY Green Bank is helping Level Solar scale up to the point where a commercial bank would take interest.
“It’s a much easier proposition when a developer can say, ‘Look, I’ve done three of these [projects]. They’re operating. This is how they work. I’ve demonstrated that end users do buy what I’m selling. And now I’m looking to finance projects four through 10,’” said Griffin. “That’s a much easier proposition for a lender to step into than when the developer is in talking about projects zero through three.” Eventually, Griffin expects commercial lenders will deal in the small loans that are currently the purview of the NY Green Bank. “We want to be involved in transactions today that if we received a proposal three years from now, that there wouldn’t be a good argument as to why we’re needed,” Griffin said. The NY Green Bank’s can act as a bridge between small-scale projects and commercial lenders who are flush with capital. According to NY Green Bank, every dollar in its vault could attract as much as $8 dollars in private sector investment over the next ten years. This is big, because penalty-free polluting isn’t the only market distortion fueling climate change. Clean energy entrepreneurs face numerous obstacles to competing with fossil fuels, not the least of which is easy access to cheap capital. A Green Bank can level the playing field for renewables, using public funds to attract private dollars at no loss to the taxpayer. If the Paris Agreement is the turning point it is thought to be, then clean energy represents a multi-trillion dollar opportunity. The Green Bank’s mission is to break open the flood gates.
Jeremy Deaton writes climate and energy for Nexus Media. Tweet him your questions at @deaton_jeremy.