The green bank value proposition

This article comes from global law firm, Norton Rose Fulbright. It is authored by Associate, Benjamin Grayson. Read the full version here.

Green banks in six states are emerging as valuable and distinct financial partners for developers and lenders seeking to lower their costs of capital.

With their deep understanding of regulatory regimes in their own states, green banks provide due diligence and technical services such as sharing forward curves in utility service areas and advising on regulatory shifts.

They use unique investment criteria, allowing sponsors to make more efficient use of capital, allocating funds toward novel financial instruments and adding subordinated debt to projects in order to increase liquidity and tenors and lower interest rates.

Recognized issues in newer energy technologies, like residential solar, microgrids and energy storage, include a lack of precedent, standardization and scale. Green banks have worked with developers and financiers to solve these issues and accelerate bringing these technologies into the resource mix.

This article focuses on how two green banks — NY Green Bank and the Connecticut Green Bank — have used their positions within their respective states to bring clean energy to the grid.

Six U.S. states have green banks currently: New York, Connecticut, California, Hawaii, Nevada, and Rhode Island.

NY Green Bank was funded initially from repurposed allocations of ongoing surcharges collected from utility ratepayers. The funds were allocated to the bank by the Public Service Commission. The Connecticut Green Bank was similarly funded through ratepayer benefit charges. As they have grown, both green banks have begun moving away from relying on ratepayer charges for funding.

NY Green Bank is a division of the New York State Energy and Research Development Authority (NYSERDA) and one pillar of the state’s $5 billion Clean Energy Fund (CEF).

In late 2017, the bank issued a request for proposals from firms interested in helping the bank evaluate strategies for raising at least $1 billion in third-party capital to leverage the funding from utility ratepayers. Alfred Griffin, the bank president, announced in June 2017 that the bank generated positive net income a full year ahead of schedule by generating enough revenue to more than cover expenses.

Leveraging green banks with private capital reduces the burden on electricity ratepayers. To date, NY Green Bank’s cumulative revenues exceed cumulative expenses. The Connecticut bank has been able to leverage more than six dollars of private investment for every one public dollar.

To date, the Connecticut bank has approximately $130 million in non-cash invested assets, which include solar lease investments (residential and commercial), solar loan investments, commercial PACE, wind, hydro, anaerobic digesters and fuel cells.

Read more here.