According to a 2014 paper from the Center for American Progress the US needs to invest approximately $200 billion annually in clean energy for the next 20 years to stabilize our climate. Scientists predict that globally we will need to cut our carbon emissions 80 percent by mid-century if we are to prevent irreversible, catastrophic environmental changes.
The US public and private sectors have annually invested somewhere between $34 and $44 billion in clean energy in the past 10 years, so the question remains: how do we make up the approximately $160 billion investment gap?
Government can start by making sure its investments in clean energy sources go further than they ever have before by seeing 10 dollars of private-sector capital invested for every public dollar, rather than the much lower return ratios that many grant, rebate, and subsidy programs realize.
Harvard Kennedy School’s Innovations in American Government Awards has given its first place prize to an initiative that does exactly that.
In 2011, Governor Dannel Malloy and Connecticut’s General Assembly established the country’s first state green bank. Their aim was to spend wisely, create jobs, lower energy costs, and realize cleaner, cheaper, more reliable power sources. Their solution, the Connecticut Green Bank, uses small amounts of public dollars to attract large sums of private capital investment. The bank is funded through a number of means including the Regional Greenhouse Gas Initiative, electric bill surcharges, federal funds, as well as private capital.
“We focus our limited funds on gaps in the market where the private sector has not yet offered a viable solution,” said Bryan Garcia, CEO and president of the Connecticut Green Bank. From the private lender's point of view, clean energy investments are still relatively new and therefore have less performance history by which to assess risk. Public dollars help these companies get over that investment hurdle.
When Connecticut Green Bank was formed, green investment also lacked established financial tools in the way that industries like real estate have mortgages and home equity loans that are widely understood. Any lender acting as a first mover would face high transaction costs to generate new financial tools as well as to find and attract potential buyers. For that reason, Connecticut Green Bank has created over a dozen products and helped form a thriving market for renewable energy in the state. Here are a few examples:
- The bank’s Commercial Property Assessed Clean Energy (C-PACE) program pairs businesses and nonprofits with contractors and financiers to make green upgrades and additions like solar panels to their buildings.
- The Green Bank also partnered with PosiGen Solar Solutions to create an innovative financing program that allows low-to-moderate income households to lease solar panels, a program which has already helped install over 500 systems throughout the state.
- The bank also recently deployed $5.8 million in ratepayer funds to leverage $125 million from a private partner into the Dominion Fuel Cell Park in Bridgeport. The new facility, among the largest in the world, provides 14.9 megawatt of continuous renewable power to nearly 15,000 homes.
According to Garcia at the recent Innovation in American Government Awards finalist event, the metric the Green Bank is interested in isn’t the size of the public sector’s monetary investment in green energy, but rather the effectiveness of that investment, something more akin to watts deployed per dollar. The Green Bank estimates that its initiatives have created more than 200 megawatts of renewable energy as well as over 13,000 jobs for the state. It has leveraged $170 million in public financing to create an estimated $1 billion in green projects.
Another important component of the Green Bank is to bring attention to low-income neighborhoods that can significantly benefit from green energy investments, but that may be overlooked by the private sector. “The issue of energy and climate change is actually linked to income, job opportunities, health, and resiliency. For our most vulnerable citizens, high energy costs are forcing them to trade off paying utilities with things like food, medicine, or housing,” said Connecticut Green Bank Vice President Kerry O’Neill.
After the Connecticut Green Bank was founded, New York, New Jersey, and Rhode Island each created their own versions of the green banking model. Colorado, Maryland, and Nevada are slated to open their own green banks, as well.