Introduction to Standardization & Collaboration

Alfred Griffin, President, New York Green Bank

February 7, 2014

Multiple phases of market support

1 • Government Subsidies

2 • Green Bank Financing with Reduced Subsidies

3 • Green Bank Financing with No Subsidies

4 • Private Sector Financing Only – FINAL GOAL

2

Private capital inadequate today to reach goal of sustainable clean energy markets

• Private capital markets not supplying enough capital to make significant market penetration

• Clean energy projects cannot access cheaper and larger pools of investors in the public capital markets

• Green banks provide bridge to self-sustaining markets by facilitating financial market development

3

Green banks animate capital markets to reduce cost of capital, need for government support

• Green bank investments directly leverage private sector investments

– Each transaction draws more private capital, increases private sector familiarity, comfort with clean energy investing

• Can also attract private capital by facilitating financial market development

– Standardization and collaboration are path to bringing mature financial mechanisms to clean energy

– Green banks show private investors the way

4

Green banks address barriers to development of clean energy financial markets

5

Private capital seeks scale

• Large private investors not interested in small investments

Inconsistent documents, methods, structures

• Inability to easily pool and assess investments hinders private investment, development of mature secondary markets

Low transparency on loan and project performance

• Lack of consistent and large pools of data on loan and project performance make it difficult to assess risks, increase capital cost

Green banks can be hubs of standardization, coordination

Green banks create scale

• Aggregate demand, increase portfolio size for private investors

• Programs administered across states create even larger markets

Green banks can create, implement standardized processes

• Develop standard legal docs, financial docs, processes, structures

• Market position gives path to actually implement

Data can be pooled and shared by green banks

• Gather critical project and loan performance data

• Share across states to dramatically increase data

6

Can take direct action to access cheaper capital, broaden pool of available capital

For example:

• Standardized contracts make bank underwriting simpler and cheaper

• More and consistent data makes it easier to assess risks, reduces cost of capital

• Common payment structures (on-bill, PACE) across states reduce perceived deal complexity

• Shared program structures lead to larger loan warehouses, reduced barriers to securitization or private placement

• Joint RFP’s create scale efficiencies to draw in larger private capital pools at lower cost

7

Standardization opens up access to public markets

• Largest and cheapest pools of capital are in publicly traded markets – specifically bond markets

• Today public market investors cannot access clean energy

• Standardization by green banks will create mechanisms and practices necessary to create bridge

• Goal is market where typical investor can buy clean energy bonds, support by pool of underlying projects

8

Working groups will consider real opportunities for standardization and multi-state collaboration

• What should green bank underwriting guidelines be?

• What quality standards will green banks enforce for

underlying technology?

• How should shared warehouses be structured?

• What laws must be the same across states to facilitate

consistent program structure?

• How can states work together to access cheaper capital?

9

Green Bank Academy

Washington, DC February 6-7, 2014

www.greenbankacademy.com