Unlocking Capital For Climate Solutions

The Environmental and Energy Study Institute (EESI) invites you view our briefing on how a national climate bank could deploy capital at scale to advance climate change solutions. Over 20 green banks currently exist in the United States, providing flexible and affordable financing for a wide range of clean energy projects that lower emissions and boost climate resilience. Because of their unique, mission-driven mandates to address social and environmental issues, these entities are well-positioned to provide targeted investments in rural areas, low- and moderate-income communities, and communities of color that are disproportionately affected by polluting facilities and climate change impacts and are often unable to access traditional funding sources.  

This briefing explored the climate mitigation and adaptation benefits that would be unlocked by a national climate bank, building upon the experiences of successful green banks across the country. Panelists discussed how these investments would also create jobs and make climate solutions more affordable, accessible, and equitable.

Highlights

Jeffrey Schub, Executive Director, Coalition for Green Capital

• Federal green bank legislation was first introduced by then-Representatives (now Senators) Ed Markey (D-Mass.) and Chris van Hollen (D-Md.) in 2009. Although it did not pass the Senate at the time, they have kept the idea alive.
• The legislation was reintroduced in 2021 by Rep. Debbie Dingell (D-Mich.) as the Clean Energy and Sustainability Accelerator Act (Accelerator, H.R.806) and by Sen. Ed Markey as the National Climate Bank Act (S.283). The legislation would provide a one-time, upfront federal appropriation to an independent nonprofit corporation to act as a National Climate Bank. The Bank's role would be to fund and finance clean energy projects across the country and fund a network of state and local green banks. The proposal has been endorsed by President Biden as part of the American Jobs Plan.
• Green banks are nonprofits that use public money to leverage private investment. The average leverage ratio of green banks is about 1:3, meaning that $1 of public investment spurs $3 in private investment. A National Climate Bank, since it would be an independent nonprofit, would have the ability to both recycle its loans to issue new ones and also borrow money in capital markets on its own credit.
• Green banks are taking off across the United States; there are currently 21 green banks in 15 states and Washington, D.C., that have, in aggregate, spent $1.9 billion, spurring $7 billion in total investment. Twenty-two more states are asking for green banks through mostly bipartisan efforts.
• The proposed Accelerator legislation would fund green banks in every state to do three things:
  • Help develop and deploy local solutions to local problems;
  • Involve private sector investors, utilities, and contractors; and
  • Involve local stakeholders to develop solutions that ensure all community members and businesses are able to participate in the transition to a clean energy economy.
• Solutions must be tailored to each state because problems caused by the carbon economy are experienced differently across states.
  • Different states have different levels of energy burden, which is the share of household income spent on energy. This burden is particularly high in the Southeast.
  • States also differ in their carbon emissions and in the health impacts from these emissions.
  • The energy transition will hit workers differently in different communities depending on the share of workers involved in fossil fuel industries.
• Clean energy projects need to be built in every state rapidly to achieve net-zero emissions by 2050. When paired with the electrification of homes, greater reliance on solar and wind will lower energy costs for households.
• Findings from numerous studies indicate that the path towards clean energy must involve:
  • A massive (sevenfold) increase in wind and solar market share;
  • Investment in high voltage transmission lines to carry electricity from generation sites in the Great Plains and desert states to distribution utilities across the country;
  • Battery storage deployed across the entire grid; and
  • Transition of heavily driven vehicles to electricity.
• The proposed Accelerator legislation involves investment in seven key sectors: renewable power, grid infrastructure, transportation, buildings, climate resilience, industry, and sustainable agriculture and forestry.
• The benefits of the Accelerator will be felt in every community because of the provisions in the legislation that allow it to specifically target each state. It is designed to work with state and local governments to tap into localized solutions.
• The proposed $100 billion in government investment would lead to $800 billion in private co-investment over the next 10 years. It would create an estimated four million jobs in four years.
• In an effort to support a just energy transition, the Accelerator would be required to channel 40 percent of its investments into frontline and low-income communities. This follows state and local green banks who are already prioritizing these underserved communities.
• Independent expert analysis indicates that the Accelerator could have a huge impact if the legislation passes. Accelerator-driven investment would reduce U.S. emissions by 20 percent, constituting the largest climate reduction program per dollar in the American Jobs Plan.
• There is recent historical precedent for enacting the large-scale change needed to build a clean energy future. From the mid-90s to 2010, the United States undertook a complete transformation of its information and communication infrastructure. Therefore, this scale of transformation is possible with the right motivation and investment.

Bryan Garcia, President and CEO, Connecticut Green Bank

• Created in 2011, the Connecticut Green Bank was the first state green bank in the country. It is a quasi-public entity, meaning that it uses private-sector discipline to achieve public-sector goals. It focuses on financing clean energy projects, which include renewable energy, energy efficiency, alternative fuel vehicles, and fuel cells. After a recent vote by the Connecticut legislature, the Bank’s scope has been expanded to include environmental infrastructure projects related to waste, agriculture, water, and resilience and adaptation.
• Public funding for the Bank comes from a surcharge on utility customers (the Systems Benefit Charge) and proceeds from the Northeast-Mid-Atlantic Regional Greenhouse Gas Initiative (RGGI). This amounts to about $30 million per year in public funding, which is used to stimulate private investment. The Bank received $300 million in private investment last year. The federal Accelerator would allow the Connecticut Green Bank to increase its activity.
• The mission of the Connecticut Green Bank is to increase the flow of private capital in order to confront climate change and provide society a healthier and more prosperous future. This is done by leveraging limited public investment to mobilize multiples of private capital investment. The Bank’s funds are used to strengthen vulnerable communities in Connecticut by making the benefits of the green economy inclusive and accessible to all individuals, families, and businesses. It focuses on pursuing investment strategies that advance market transformation in green investment.
• From a supply-side perspective, green banks work by using public investment ($30 million/year for the Connecticut Green Bank) to reduce the perception of risk by private investors. This spurs private investment, which, along with the public investment, goes into clean energy projects. Private investment is made in the form of loans, which are paid back to the private investors. Investment drives the deployment of clean energy, which reduces the energy burden of households and businesses, reduces emissions, reduces particulate matter, and creates jobs. The Connecticut Green Bank has a 6:1 leverage ratio [one dollar of public funding leverages six dollars in private investment].
• An example of one of the Bank’s projects is the residential solar photovoltaic (PV) and energy efficiency lease for low- and moderate-income (LMI) families and communities of color. Spending six percent of household income on energy is deemed affordable, but in Connecticut, many LMI families spend 15-20 percent of their income on energy, creating an affordability gap. Green banks can reduce their energy burden by combining solar PV with energy efficiency.
• Other recent projects include installing a new food waste anaerobic digester and restoring an old dam to produce hydropower.
• Per statute, the Connecticut Green Bank has the ability to issue bonds and has sold fixed-income green bonds to citizens to raise money for clean energy. Last Earth Day, $25 million was raised by selling bonds to individuals, municipalities, and institutional investors across the country. The bonds have three characteristics:
  • The proceeds must go towards furthering Paris Agreement goals, such as the mitigation of greenhouse gas (GHG) emissions as well as adaptation and resilience;
  • The face value can be no more than $1,000; and
  • There must be verification that the proceeds go to the intended purpose.
• “Green Bonds Us” is the bank’s motto, referring both to the green bonds sold by the bank and the bonding power of nature.

Duanne Andrade, Chief Financial Officer, Solar Energy Loan Fund (SELF)

• The Solar and Energy Loan Fund (SELF) is the first and only nonprofit green bank in Florida. It was founded in 2009 with a $3 million grant from the Department of Energy (DOE) with the intention of revitalizing the economy through the creation of green jobs.
• In 2012, it became a certified Community Development Finance Institution (CDFI). CDFIs are designed to fill financing gaps for low-income communities that are often left behind by traditional banks. They have a mandate to do 60 percent of their lending in low- and moderate-income (LMI) communities. SELF uses the CDFI model to make “green” loans, which mostly go towards energy efficiency and clean energy projects.
• SELF adopted a new lending paradigm based on ability to repay rather than credit score, income, or assets, which are typically used by traditional banks.
• To date, SELF has leveraged $25 million in loans and grants, $18 million of which have been deployed for unsecured single-family home improvement loans. This puts SELF at an 8:1 leverage ratio [one dollar of public funding leverages eight dollars in private investment]. Fifty-four percent of the clients SELF serves have credit scores of less than 680 and 74 percent of clients are LMI. The average default rate is less than two percent.
• SELF also recruits contractors, with a focus on small businesses and businesses of color, to carry out retrofits. There are over 6,000 contractors in SELF’s network, who are able to reach available markets at no cost to the business.
• SELF’s mission is to rebuild and empower underserved communities by providing access to affordable and innovative financing for sustainable property improvements, including energy efficiency, renewable energy, wind-hazard mitigation, water quality, and disability and aging home adaptations.
• SELF has several different lending programs that are tailored to the markets it serves. The CDFI loans have no minimum credit score or income and charge 5 to 10.99 percent interest over 3-10 years. Another notable lending program is called KIVA, which provides crowd-funded, peer-to-peer lending for veterans and women with low credit scores. This model allows SELF to channel global capital into low-income communities and help vulnerable individuals by providing low-cost, equitable loans.
• The majority of projects in SELF’s active loan portfolio are for wind-hazard (storm) mitigation and energy efficiency retrofits. While converting to solar is necessary for a green economy, there is other work that needs to be done first on homes in LMI communities, including increasing efficiency, improving resilience, fixing roofs, and helping homeowners access insurance. Solar can come in once the energy demand in these communities has been reduced through these energy efficiency home improvements.
• By accessing philanthropic funds, SELF is installing the first rooftop solar project on public housing in Florida.
• Individuals impacted by SELF include Carol, a widow with no credit who was able to get a loan for a high-efficiency air conditioning installation, and Pamela Turner, a single mother and veteran who got a KIVA loan to fix roof damage from a hurricane.
• In 2013, all of SELF's funding came from a DOE grant. Now, SELF has 25 different investors for a total of over $24.5 million. SELF’s capital composition is made up of: bank loan capital, non-government grants, private capital, grant loan capital, donations from faith-based organizations, impact investors, KIVA crowd-funding, and health systems investment.
• Green banks are able to provide social, environmental, and economic impact.

Brittany Heller, Workforce & Community Engagement Manager, GRID Alternatives Colorado

• Grid Alternatives seeks to build community-powered solutions to advance economic and environmental justice through renewable energy. As the nation’s largest nonprofit solar installer, Grid Alternatives works with the communities most impacted by climate and economic injustice to bring the benefits of clean energy and jobs to all families and individuals. Grid Alternatives believes that these benefits—including cleaner air, long-lasting careers, and lower energy bills—must be realized by all; addressing systemic injustices that have disproportionately affected communities of color to achieve a clean energy future is central to Grid Alternatives’ mission.
• Since 2004, Grid Alternatives has installed solar for 19,540 low-income households, helped families save over $500 million in lifetime energy savings, prevented 1.3 million tons of GHG emissions from entering the atmosphere, and provided nearly 261,000 job training hours.
• With Grid Alternatives' paid training, individuals learn solar skills while building real-world solar installations. These trainings are made available to those who have historically been left out of the solar industry, such as women, people of color, and those impacted by the criminal justice system. These trainings jump-start careers, allow low-income individuals to access training without foregoing income, and connect people to a network of employers.
• So far, Grid Alternatives has installed 11 megawatts (MW) of solar for underserved communities in Colorado. One example is a 1.2 MW community solar array for the Ute Mountain Ute Tribe. This project will provide electricity for 120 Tribal residents and businesses, offset 10 percent of the reservation’s energy usage, and prevent 1,500 tons of GHG emissions by year one. It will also help advance the Tribe’s energy sovereignty. Fourteen Tribal members joined Grid Alternatives to install the array, gaining valuable experience and transferable skills.
• Solar deployment is growing across the United States, and as it does, so too will the need for a skilled workforce. According to the National Solar Job Census of 2020, achieving President Biden’s goal of decarbonizing the grid will require 900,000 solar workers across the supply chain by 2035. As the solar sector grows, wages for solar jobs across the supply chain are also on the rise.
• The solar workforce is also growing more diverse with more women and people of color. While diversity is growing and is comparable to other industries, there is still a lot more work to be done before it matches the diversity of the U.S. population at large. Environmental justice and equity need to remain at the center of policy priorities and growth planning.
• As Colorado continues to work towards 100 percent renewable energy by 2040, Grid Alternatives will continue to provide job training for those seeking career pathways in the clean energy sector.
• One example of Grid Alternatives’ personal impact is Michael Martinez, a trainee who had been out of work for several months. After the training program, he is helping build solar arrays at the Denver International Airport.
• Achieving a just transition together requires investment funding. The creation of a National Climate Bank would have a significant impact on advancing equitable access to clean energy, preventing GHG emissions, and creating jobs.

Q&A

Q: How do you provide services to underserved communities, communities of color, and low- and moderate-income (LMI) households? How would that increase with a National Climate Bank?

• Schub: The premise of delivering energy, promoting climate justice, and supporting those who are underserved is central to the green bank model. This is built into the federal proposal. What it comes down to is combining local capacity and knowledge with the right funding. Addressing equity and access is intrinsically localized. It is about meeting people where they are and understanding their needs and barriers, which is hard to do with a standardized national-scale solution. This is why the Accelerator proposal is based on a national network structure, which empowers local partners to develop necessary solutions. Capital is also essential, and it is a matter of delivering the right terms for loans. We need to be flexible and meet customers where they are. This flexibility needs to be built into the federal plan. Finally, there is a need not only for local solutions, but for local participation and decision-making in how those solutions come together and are implemented.

• Garcia: The Solar for All program is only one arrow in our quiver. However, this program only works with LMI homeowners, and only 5 percent of Black and Hispanic families own their homes. This is to say that there are no silver bullets. We need to identify a number of other strategies. We have spent a lot of time over the last year in Connecticut working within a regulatory structure to get the rules and compensation right. A regulatory structure that prioritizes energy affordability will attract the right developers, ultimately reducing the burden on the most vulnerable. Right now, we are only touching five to ten percent of the available market, and a National Climate Bank would increase resources for local green banks enabling them to deliver more value to families and businesses.

• Andrade: This mission is core to SELF. To address the question of how we can best serve LMI individuals, we first need to adjust the way we think about LMI. LMI communities are not LMI because of personal faults and are not necessarily more risky markets, rather, they have been left out and often do not trust banks. We also need to view LMI as a spectrum because the needs of the poorest within that group are much different than the needs of moderate-income families. Forty percent of Americans are in a middle zone, which can be described as “asset-limited, income-constrained and employed” (ALICE). These people do not qualify for low-income grant or loan funding but do not have enough resources to access affordable financing on their own. We can reach these markets by seeing them as credit-worthy and accommodating their needs. We are applying financing in a different way successfully and proving that these markets that have been left behind are good investments.
  
  A National Climate Bank would unlock so much potential to leverage more funds. We need to go renewable to meet climate goals, but SELF cannot do that because the market is not ready and because the financing is not there. With a National Climate Bank, we would have access to the long-term, flexible financing needed to provide more solar to our markets.

• Heller: As for Grid Alternatives, we connect with these underserved communities by being embedded in the communities. We have really strong networks and partnerships with community-based organizations. With additional funding, we would be able to scale up existing programs and offer new programs. Often, we get projects and then have to figure out how to fund them. It would be great to flip  that by having a source of funding first and then go to our partners for projects.

How do you work with existing federal, state, and local stakeholders, including the private sector, to provide clean energy investments?

• Heller: We can always find innovative, impactful projects but finding funding is the challenging piece. We often string together public and private funds. For example, we use Community Development Block Grants from the Department of Housing and Urban Development. We also work with the private sector, which has its benefits but can sometimes eat into the benefits for customers, especially LMI customers, depending on the needs of the investor. With greater access to funding, we would be able to do so much more and spend more of our time on the work, rather than chasing funding.

• Andrade: There are many opportunities to leverage capital and relationships. We work closely with local governments, for example, to provide seed grants for capacity building. In Florida, local governments and cities, rather than the state as a whole, have goals for sustainable development. SELF frames itself as an implementation tool to meet the goals of these local governments. We also partner with other nonprofits that specialize in services such as financial coaching and job training, and we serve as a resource center to better connect people to the resources they need. In the communities where we partner, everybody wins. There are always banks that need Community Reinvestment Act (CRA) credit, whose capital we can leverage. We are not trying to do this work on our own, instead, we are bringing together public, private, and philanthropic funds.

• Garcia: Connecticut’s state GHG emission reduction targets are closely aligned with the U.S. Nationally Determined Contribution (NDC) [or climate commitment] under the Paris Agreement on climate change. The United States NDC is a 50-52 percent net emission reduction by 2030 based on 2005 levels, and Connecticut's is a 45 percent net emission reduction by 2030 based on 2001 levels, so Connecticut is in line with the Biden-Harris Administration on this.
  
  As we try to identify more opportunities to drive investment for the most vulnerable communities, the question is how do we do so given the existing challenges with how compensation for tenants and property owners works? With the goal being to reduce energy burdens and give income back to families, we do not want to offset the incentives that these families receive. There are opportunities for the federal government to innovate so that we can begin to solve owner-tenant problems through state and federal partnerships. In addition, the Department of Treasury could broaden the scope of projects that qualify for CRA credit to include mitigation and adaptation to climate change. These CRA credits would entice banks to put their capital to work in partnership with green banks. Lastly, we need to learn from each other to accelerate solutions within our respective geographies.

• Schub: Most of the investments we have been talking about here are good, return-generating investments. But they are also complicated, which is why these projects often do not get built; someone has to figure out how these complicated transactions and public-private partnerships work. From a federal standpoint, it is important to understand how a National Climate Bank is designed to be complementary to other federal efforts (such as CRA) to maximize their impact. It is also designed to address smaller and distributed projects, which are hard to address with traditional federal financing programs. Traditional federal financing does not have the targeting flexibility to run different programs in different locations like a National Climate Bank could. The last category of partnerships that is extremely important is utilities. The transition to a clean energy future will require utilities to be partners. For example, one key component of the Accelerator is that it will be able to engage in direct negotiations with utilities that are in the process of transitioning away from coal and have stranded asset costs. The Accelerator can help lower costs for rate-payers and provide financing for cheaper clean energy solutions.

What are your thoughts on the nexus of green banks, the Department of Agriculture’s (USDA) Rural Energy Savings Program (RESP), and on-bill financing?

• Shub: I strongly endorse the effort for green banks to access funding through the RESP program. A lot of green banks around the country use on-bill financing, a key access-expanding tool, but sometimes these things are complicated to implement, as evidenced by the existence of EESI’s Access Clean Energy Savings technical assistance program. We need to use every tool in the toolkit.

• Andrade: I would add that it should not just be rural. Right now, it is at the will of the utility. We had the opportunity to work with Martin County utilities and they were amazing to work with. But it is something that needs a lot of work.

• Garica: In Connecticut, we have 169 towns, 50 percent of which are considered rural. Our application is in to access funding for the Connecticut Green Bank through RESP, and we are looking forward to a USDA review.

Highlights compiled by Anna Sophia Roberts