Advocating for, Establishing, and Capitalizing a Green Bank

• Ken Berlin, SVP and General Counsel, CGC, moderator

• Mike Paparian, Deputy Treasurer, State of California Office of Treasurer Bill Lockyer

• Greg Hale, Senior Advisor to Chairman of Energy and Finance, State of New York

February 7, 2014

Create green bank with multi-step process

• Advocacy

– Build coalition of stakeholders to support green bank creation

• Pass Legislation or Regulatory Change

– Determine capital source and organizational entity

• Establishment

– Raise funds and design organizational structure

2

First advocate for governor support, pass new law, regulations

• First establish base of support in your state

– Organize key stakeholders – clean energy organizations, businesses, nonprofits, state agencies

– Collaborate to produce materials – legal analysis, org analysis, market assessment, green bank benefits, identify capital sources

• Identify legislative partners

– Work with state legislators or regulators to build support for passage

• Bring to governor to gain endorsement

3

Assess possible organization placement as part of advocacy

• What are the potential structures?

– 1) Quasi-independent, 2) Part of state agency, 3) Part of infrastructure bank

• What existing structure can green bank be part of?

– Energy office, Treasurer, clean energy agencies, finance authorities

– Do these entities have legal ability to create new subsidiaries? Can they perform green bank actions? If not, need to pass law.

• By legislation or by administrative action?

– Can do administrative action when the existing entity has adequate legal authority to act as a green bank

– Otherwise, legislation is needed

4

Pros and cons of using existing entity

• If placed in existing entity, green bank can leverage resources and capabilities

– Org may already have good market knowledge, industry relationships, internal data and management systems

– Careful capabilities assessment can determine what can be shared

• But there are challenges to redirecting state agency

– Requires cultural shift within organization

– Need new staff with experience and knowledge of finance

– Repurposing may take as much time as creating new organization

5

Must decide what projects and markets to address

• What types of projects could green bank finance?

– Low-risk energy generation/savings projects – solar, wind, efficiency

– Innovative high risk or manufacturing project – requires different business model, VC-type structure and expertise

– Infrastructure – large public works, such as transmission

• What specific markets will green bank address?

– Perform initial market assessment in early stages, need to provide scope of potential work to move legislation

– What is market size? Current penetration? Where are the financing barriers? Unmet demand?

6

Org placement may define capital sources

• Repurpose existing funds through legislation

– Can tap cap-and-trade or existing grant program revenue

– Can it be done without annual appropriation?

• Issue Bonds

– Need bonding authority, issue org bonds

– Means green bank must deliver returns to investors

– Can use creative structures to leverage authority of other offices

– If there is existing bonding authority is it adequate or is new legislation needed?

• Regulatory surcharge

– Redirect system benefits charge, spreads burden across ratepayers

7

May consider non-government sources of capital

• Direct Private Investment

– Rather than (in addition to) partnering with private capital at investment level

– Allow private investors to take equity stake in green bank itself

– Must be structure like any other company with financial statements, clear record of ownership between all investors (state and private)

– Does not work if green bank is a government entity

– Green bank could enter partnership with private entity (joint-venture)

8

After assessment, speak to nonpartisan green bank benefits

• Many reasons to support green banks no matter the political environment

– Creates cheaper, cleaner, more reliable energy

– Lowers electricity bills, saves money for consumers

– Uses less public dollars, leverages private sector and recycles

– Stimulates local economies, direct and indirect job growth

– Facilitates private capital market development

– Money goes into revolving loan fund, creates scale

• A new model for more efficient government that creates economic gains for consumers and enables private sector

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Move quickly to build green bank, invest after passage

• Define organization strategy and mission

– Align green bank around clearly stated goals

• Build organization

– Hire staff, develop internal management processes, design data management tools, create financial statements

• Refine market assessment

– Build on early market assessment to segment the market, identify target customers, develop customer acquisition strategy

• Develop products and find private partners

– What capital structures and at what terms? How much private capital and at what terms?

10

Three past and current examples of process

• Connecticut

– Long advocacy process, carefully crafted legislation, governor support with strong alignment of key agencies, multiple funding sources, repurpose existing entity

• New York

– Long advocacy process, upfront endorsement of governor, chose regulatory path, commission approval to repurpose surcharges, department within existing state energy office

• California

– Ongoing advocacy process, robust engagement of key stakeholders, have legislative support, considering various organization options

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Green Bank Academy

Washington, DC February 6-7, 2014

www.greenbankacademy.com