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Green Bank Financing to Accelerate Solar Deployment
Coalition for Green Capital Jeffrey Schub, Executive Director Midwest Solar Expo, Minneapolis, MN May 23, 2017
CGC is the leading expert on Green Bank model & institution formation
Thought Leadership
Advocacy
Consulting
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• CGC, a non-profit, partners directly with governments and NGOs to study, design and implement Green Banks
• Helped design & create 6 GBs, which have catalyzed over $2 billion in clean energy investment
• CEO Reed Hundt, former chairman of U.S. FCC
• Supported by major global foundations
• Green Bank Overview
• Success to Date
• Growth & U.S. Trends in Green Banks
• Green Bank Creation & Design
Table of Contents
3
Green Banks use public dollars to drive more private clean energy investment, deploy affordable clean energy
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Capital Markets Green Bank Projects &
Consumer Demand
• Are focused institutions, created to maximize clean energy adoption
• Use public-purpose money to de-risk & leverage private capital
• Provide financing in many forms to underserved market sectors
• Are market-oriented and flexible, and aim to increase consumer protection, information transparency, and ease of adoption
• Seek to be self-sustaining, and produce dividends for taxpayers
• Complement existing actors and programs, bridging gaps in capital supply chain
Why Green Banks? Because of importance of dedicated local institutions
Specific Focus Local Capital Formation
Prime the Pump
Take 1st or 2nd Loss
Carry Market-Making Costs
Convene & Organize
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Green Banks utilize a common set of techniques and finance tools to address targeted market barriers
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Multiple Finance Tools
• Loans
• Credit Enhancement
• Warehousing & Securitization
Innovative Mechanisms
• PACE/Local Improvement Charges
• On-Bill Recovery
• ESAs
Market Development
• Contractor Training
• Info Transparency
• Standardization
• Demand Aggregation
Efficient & Rapid Market Growth
• Green Bank Overview
• Success to Date
• Growth & U.S. Trends in Green Banks
• Green Bank Creation & Design
Table of Contents
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Green Banks around the world are working!
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Example: CT GB’s Residential Solar Tax Equity Fund expands customer access to rooftop solar
• CGB created unique public-private financing platform
• Product enables local developers to offer financing to customers who otherwise would have to pay all upfront
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Green Bank -Subordinated Debt -Loan Loss Reserve
-Equity
Private Investors -Senior Debt -Tax Equity
Residential Solar Lease
Fund
Local Installers
Solar Customers
Increased financing allowed reduction in rebate level, growing market while lowering public cost
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Inst
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apac
ity
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Inst
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ost
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Cost to Consumer Subsidy Installed Capacity
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Green Bank Launched
CT Grows Residential Solar With More Financing While Reducing Subsidies
Source: Energize CT, Residential Solar Investment Program, “Section 106 Data – Information on Installers and Costs – Updated April 1, 2016,” available at http://www.energizect.com/your-home/solutions-list/residential-solar-investment-program.
CT Green Bank receives far more private leverage on its capital than the state’s incentive programs
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$4.65x
$0.90x
From 2014-2016 the Green Bank leveraged $4.65 of private investment per dollar of public
investment…
…while the Incentive Programs leverage $0.90 of private investment
per dollar of public investment.
The Green Bank’s products are designed to “crowd-in” capital and get more bang
for the buck.
Notes: Leverage is measured by as private investment in projects divided by public investment in projects, no matter the form of investment (incentives or finance). For Utility Programs, private investment is equal to the “Customer Cost,” the portion of a project cost not paid for by incentives.
• Green Bank Overview
• Success to Date
• Growth & U.S. Trends in Green Banks
• Green Bank Creation & Design
Table of Contents
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Green Bank trends in the U.S. are all up
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• Since 2011, six state and local Green Banks have been established in the US
• As of mid FY17, US Green Banks have sparked > $2 billion in energy investment, with majority of dollars coming from private sector
$0
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2012 2013 2014 2015 2016
Mill
ion
s
# of Banks Cumultive Investment
Notes & Sources: CGC analysis; Green Bank numbers for fiscal year
Emerging trends in Green Bank space
• GBs moving to new Purple & Red states
• Must make clean energy accessible to all
• It’s really up to states (though Feds could help)
• Increasing interest in gov’t-adjacent solutions
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In the U.S., state & local Green Banks are spreading, with growing interest from all regions
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CGC Now Working on Green Banks in 15 states
CA
CT
DE
MD
VT
NV
NY HI
RI
MA
DC VA
CO
MO
PA
More Green Banks are being developed to be “government adjacent”; private but still connected to government
DC
• Legislation to create quasi-public with board
• Capitalized with public funds
Mont Co
• Legislation to create a non-profit with mixed public/private board
• Capitalized with Public Funds, but will also raise private funds
NV
• Legislation to create non-profit with mixed public/private board
• Will be capitalized primarily with private funds
PA
• No legislation – will be created as non-profit, but work with govt
• Will seek to raise public and private funds
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• Green Bank Overview
• Success to Date
• Growth & U.S. Trends in Green Banks
• Green Bank Creation & Design
Table of Contents
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Green Banks have similar operating principles, precise organization form and product mix varies
EIP Form Goals
Markets
Barriers
Products
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EIP Form
Political constraints
Existing Institutions
Available Capital Sources
Expediency
Three common forms, with varying degrees of reliance on government for creation, capital, power
Public
• Directly part of government
• Either an independent agency, or division of existing
Quasi-Public
• New or repurpose wholly-owned instrumentality
• Typically has Board mix of govt and non-govt Directors
“Government Adjacent” Private Non-Profit
• Corporation is completely independent of govt
• Ideally still connected to government in some way…
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Successful examples of operating Green Banks in all forms
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Public
Quasi-Public
Private Non-Profit
GBs can (and do) have wide set of goals, some of which are opposing – can’t do them all
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• Reduce GHG Emissions
• Lower Energy Prices
• Lower Energy Spend
• Increase Renewable Market Penetration
• Create Jobs
• Promote Economic Development
• Improve Social Equity
• Increasing Climate Resiliency
• Maximize Clean Energy Deployment
• Spur Local Tech Innovation
• Increase EV Adoption
Potential Green Bank Goals
Growing set of proven products and solutions to address range of potential target markets
Target Market Barriers Products Residential Efficiency • Long payback period
• Trust in savings • Loan security • Small projects
• WHEEL • Standard-Offer LLR (CT &
MI) • R-PACE
LMI SFH Solar • Cost of solar power • FICO requirements
• Solar Lease + EE Upgrade (CT)
LMI Solar Rental • Split incentives • Community Solar (CO)
Commercial Efficiency • Low capital priority • Long payback period • Difficulty underwriting
• C-PACE • Direct Lending (for small
projects)
Municipal Efficiency • Procurement rules • Low capital priority • Debt limits
• Bundled ESCO Bond (DE) • Muni Bond Aggregation (RI)
Innovative Grid-Tied Renewables
• Perceived risk • Lack of liquidity
• Market-Responsive RFP Fund (NY)
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CGC works with state, federal and international stakeholders through multiple stages GB creation
Complete Study to Determine Green Bank Objective,
Products, Structure
Develop Green Bank
Implementation Plan
Stand-Up & Operationalize
Green Bank
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See Resource Center on CGC Website for Past Green Bank Studies
Thank You
Jeffrey Schub, Executive Director
Coalition for Green Capital
jeff@coalitionforgreencapital.com
Twitter: @CGreenCapital
Green Banks use multiple structures to draw in more investment capital at better financing terms
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Green Bank Capital
Private Capital
Green Bank Origination
Private Purchase of Portfolio
Senior Private Capital
Green Bank Credit
Enhancement
Project
Project
Project
Credit Support Co-Investment Warehousing
PACE financing is new construct designed to increase lending security, make building investments appealing
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• PACE lien is new tax assessment
• PACE is lower cost, longer term than commercial loan
• PACE seniority secures repayment
• PACE stays with property upon sale
Commercial Building Capital Stack
Mortgage
Equity
Prop Tax & PACE Lien
Example: CGB’s C-PACE enables secure efficiency investment at scale
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Green Bank
Tax Collector Commercial
Building PACE Assessment
Loan Payment Loan
Private Investors
Portfolio Securitization + Credit Support
Cash Purchase
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Centralized State-wide Green Bank Administration
Example: Green Bank offers standard credit enhancement to retail lenders to serve the market
• Green bank defines terms of loan loss reserve and risk-mitigation mechanism for residential EE & RE loans
• Banks enter market with reduced risk and offer good terms
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Green Bank
Loan Loss Reserve
Commercial Bank
Commercial Bank
Commercial Bank
Commercial Bank
Borrower
Borrower
Borrower
Borrower
Project Loan
Project Loan
Project Loan
Project Loan
Example: Green bank loan warehouse for SMB building upgrades, following by private sale
• Green bank directly issues loans for project, and builds portfolio that has scale, diversified risk
• Then sells portfolio to private investor to recycle capital
• Good for projects too small for PACE (<$100k)
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Green Bank
Commercial Building Upgrade Project
Loan Repayment
Loan
Private Investors
Portfolio Securitization + Credit Support
Cash Purchase
1 2
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Example: Green Bank can work with private partners to create programs tailored to low-moderate income
• Green bank offers solar financing, coordination with relevant agencies, and market info
• Private party installs simple efficiency package, then solar, through single financing repayment – cash flow positive
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Green Bank -Rooftop solar
financing
Private Partner -Acquires customer -Audit & Installation
-EE Financing
LMI Households
Energy Savings
Agreement
Solar Lease
Alternative Underwriting –
Utility Bill Payment History
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