Green Banks: Growing Clean Energy Markets by Leveraging Private Investment with Public Financing

Abstract

A green bank is a public or quasi-public institution that uses limited public capital to leverage greater private investment in clean energy. Green banks are designed to animate private capital markets and “crowd-in” the private investment needed to rapidly deploy commercial, proven clean energy technologies. As a public or quasi-public institution, a green bank is either directly part of government or an instrument of government. As such, a green bank can be crafted and designed to suit the market needs and policy objectives of the nation or state it is meant to serve. A green bank can be capitalized with any number of public sources. With their public dollars, green banks provide financing for projects in combination with private capital. Among the financing techniques commonly used are credit enhancement, co-investment, and warehousing/securitization. Green banks can use the described financing techniques through a number of structures that the clean energy financing industry has developed as new delivery mechanisms, including Property Assessed Clean Energy (PACE) financing and on-bill financing/repayment. Green banks have been created in five states and nearly a dozen other states are now considering green banks of some form. Legislation to create a federal green bank has been introduced twice in Congress, receiving broad bi-partisan support and passing the House of Representatives. Additionally, the Organization for Economic Co-operation and Development (OECD) has hosted two international conferences on green banks, producing materials to help nations create their own green banks.

TOPICS: Fixed income and structured finance, ESG investing, legal/regulatory/public policy