washington, d.c. 202.777.7700 the role of state green banks 1 kenneth berlin senior vice president...
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Washington, D.C.
202.777.7700
The Role of State Green Banks
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Kenneth Berlin Senior Vice President
(202) [email protected]
www.coalitionforgreencapital.com
Reed HundtCEO
(202) [email protected]
Washington, D.C.
202.777.7700The Coalition for Green Capital
Nonprofit 501(c)(3) organization
Established in 2012 Based in Washington D.C. Full time staff in DC, NY, CA
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CGC’s mission is to create demand for clean energy and energy efficiency and reduce carbon emissions by establishing green banks at the state, federal, and international levels.
Consulting
Modeling
Advocacy
Policy
Networking
Washington, D.C.
202.777.7700
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• Low-cost financing for clean energy projects
• 100% financing for residential and small business energy efficiency programs
• Greater liquidity for clean energy instruments
• Solutions that address market failures
The Coalition for Green Capital develops Green Banks that provide:
Washington, D.C.
202.777.7700Coalition for Green Capital works at the national level
• American Clean Energy and Security Act: Green Bank (H.R. 2454) - $7.5 billion
• Senate Energy Committee Bill - 2010 - $10 billion
• Developing new draft federal green bank legislation– Federal Green Bank would be funded either by bonds or
borrowing from Treasury
– 75% of funds would be lent to state green banks
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Washington, D.C.
202.777.7700And the Coalition is leading the green bank movement at the state level
• January 2011 – CT Passes CEFIA legislation.
• Early 2013 – Hawaii establishes green bank-type entity with $100-$200 million in bonding authority.
• February 2013 – Senator De Leon of California introduces SB798–Green Infrastructure Bank.
• September 2013 – Governor Cuomo of NY files for utility commission approval of green bank with goal of $1 billion in capital.
• CGC is currently working in 4-7 additional states.
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Washington, D.C.
202.777.7700The Green Bank Approach
• Repurpose existing state funds into a new entity or within an existing finance authority so they are:
– Matched with private funds from investors with patient long-term capital who are seeking a conservative rate of return
• Use bonding authority to raise additional funds
• Lower the cost of clean energy solutions and address market failures
• Push programs away from rebates, grants, loan write-downs and subsidies and into revolving loan programs
– In revolving funds same dollar can be used multiple times
• Finance both EE and RE deployment with no tech risks
• Develop different structures for higher risk projects
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Washington, D.C.
202.777.7700The Coalition for Green Capital wants to establish Green Banks, design products, lead interstate collaboration
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• To pass green banks, building coalitions in states and analyzing each state’s legal and energy landscape
• Developing innovative products to stimulate demand for green bank financing
– Products for solar PV market such as Connecticut Solar Lease Program 2
– Design green bank product to finance EV charging stations
– Build 100% financing products for EE, paid back through savings
• Planning Green Bank Academy to facilitate collaboration between Green Banks
– Two-day workshop in D.C. for state energy leaders to learn green bank building tools
– Will identify ways in which green banks can develop products together and standardize practices
Washington, D.C.
202.777.7700Green Banks can pull several levers to make clean energy cheaper
1) Cheap and Available Financing
2) Securitization
3) Scale
4) Technology Advances
5) Subsidies & Tax Policy
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Washington, D.C.
202.777.7700Green banks can reduce financing costs across clean energy markets with many financial tools
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Green Bank Products
Direct Debt
Wholesale Debt
Subordinated Debt
Loan Loss Reserves
Credit Enhancements
Warehousing
Markets
DG Solar
Residential EE
Commercial EE
Low-Income
Utility-Scale Generation
Apply Any Product to Any Market
Washington, D.C.
202.777.7700
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Because Green Banks are nonprofit, financing costs for clean energy are lower
Investor Group Required Return
Commercial Debt 6%
Tax Equity 12%
Developer Equity 15%
Green Bank Debt 2%
Expected Returns of Typical Clean Energy Investors
Rather than maximizing return, Green Banks offer cheap capital in order to lower consumer payments for clean energy
Washington, D.C.
202.777.7700The Brattle Group “Rooftop Solar PV Green Bank Financing Model”
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Specifications including:
•Installed costs
•Regional capacity factors1
•State policies and incentives1
•Capital structure including Green Bank Debt
1. Initially shown for Connecticut
Key metrics:
•Retail cost2
•Equity returns
•Installed capacity per dollar of Green Bank Debt
2. In the form of a 2013 levelized cost of electricity, net of state incentives and RECs.
• Focused on incremental benefits of Green Bank funding at project level
• Based on illustrative specifications provided by CT Clean Energy Finance and Investment Authority (CEFIA) and the Coalition for Green Capital (CGC)
• Model derives key metrics for behind-the-meter solar:
Washington, D.C.
202.777.7700Illustrative Base Case
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Under above assumptions, reliance on:
•Tax equity
•State incentives
•RECs
Would hold retail costs at $0.210/kWh (without Green Bank Debt)
Washington, D.C.
202.777.7700Green Banks can make residential solar cost competitive in Connecticut with a 20% investment
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Retail Price in CT
Green Bank Makes Clean Energy Cost Competitive
• In Connecticut, for example, Green Bank debt brings price of solar electricity below retail
• Highlights significant impact financing cost has on clean energy price
• Assumes only 20% Green Bank debt investment
• Inclusive of current Connecticut subsidies
1) Capital structure is 20% Green Bank Debt, 20% Commercial Debt, 48% Tax Equity and 12% Developer Equity. Assuming Green Bank debt offered at 2% for 15 years, Commercial debt is at 6% for 6 years, developer equity return is 15%, tax equity return is 12%, 15-Yr REC price is 3 cents/kwh and 6-Yr State Incentives are 22.5 cents/kwh.Source) Rooftop Solar PV “Green Bank” Financing Model, Sponsored by The Connecticut Clean Energy Finance and Investment Authority and the Coalition for Green Capital, Developed by the Brattle Group. Available for download from: http://www.coalitionforgreencapital.com/the-model.html
Washington, D.C.
202.777.7700Potential Impact of Green Bank Debt
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Green Bank Scenarios1 defined per capital structure scenarios shown below:
1Green Bank scenarios for illustration purposes.
Washington, D.C.
202.777.7700If Green Banks provide enough investment and solar install costs come down, prices will drop dramatically
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0% 10% 20% 30%
$4.5 21.0 18.7 16.3 14.0
$4.0 17.4 15.4 13.3 11.2
$3.5 13.9 12.1 10.3 8.5
$3.0 10.3 8.8 7.2 5.7
Price of Electricity from Solar (cents/kWh) in CT as a Function of Green Bank Debt and Installed Cost
Pink-highlighted prices are below current retail electricity price in Connecticut
% of GB Capital in Structure
So
lar
Inst
all
Co
st
($/W
att
)
If solar installed costs drop to $3.5/watt and 30% of investment comes from Green Bank, the consumer needs to pay only 8.5 cents/kWh to pay back investors with adequate profit.
Source: Rooftop Solar PV “Green Bank” Financing Model, Sponsored by The Connecticut Clean Energy Finance and Investment Authority and the Coalition for Green Capital, Developed by the Brattle Group. Available for download from: http://www.coalitionforgreencapital.com/the-model.html
Other Assumptions•Developer Equity Return: 15%•Tax Equity Return: 12%•Total Leverage: 40%•Commercial Debt Interest: 6% for 6 years•Green Bank Interest: 2% for 15 years•15-year RECs: $0.03/ kWh•6-year State Incentives: $0.225/ kWh
Capital Structure is 20% Green Bank Debt, 20% Commercial Debt, 48% Tax Equity, and 12% Developer Equity.
Washington, D.C.
202.777.7700Green Bank investment + Private investment leads to more clean energy projects
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Typical Capital Structure
Economical Projects
High Capital Costs Push Consumer Payments Above Retail
Electricity Price
Green Bank Capital Structure
Lower Capital Costs Reduce Consumer Payments To or
Below Retail Rates
Technically Feasible Projects
Green Bank investment attracts private investors andincreases size of clean energy market.
Washington, D.C.
202.777.7700As Green Banks get paid back, they re-use money and leverage private capital to expand clean energy investing
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Year 0: Initial investment
attracts private capital
Original Investment
First Recycling
Second Recycling
Year 6: Funds are recycled into a new
investment, attracting more private capital
Year 6: Investment
is fully repaid
Public funds are lent
Public funds are repaid
Year 12: Investment is fully repaid
Year 18: Investment is fully repaid
Year 12: Funds are recycled into a new
investment, attracting more private capital
Illustrative Example of Green Bank Recycling and Leverage
Source) Based on CGC research in New York for the New York Green Bank in conjunction with Booz & Co.
• Same Green Bank dollars invested multiple times, re-leveraging private dollars
• Recycling multiplies total clean energy investment
• Illustration is conservative, as loan repayments occur constantly and cash can be redeployed throughout period
Washington, D.C.
202.777.7700Green Bank Models
We have found that there are three leading models for state green banks:
Connecticut Model
State Clean Energy Financing Authority Model
Infrastructure Bank Model
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2
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Washington, D.C.
202.777.7700 The Connecticut Model
• Established Clean Energy Finance and Investment Authority (CEFIA): a quasi-public corporation that consolidated several existing funding sources
• Given the power to issue bonds
• Authorized to raise funds from private sources of capital capped at an average rate of return set by the board
• Permitted to finance up to 80% of the cost to develop and deploy a clean energy project and up to 100% of the cost of financing an energy efficiency project
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Washington, D.C.
202.777.7700 The State Clean Energy Financing Authority Model
• Part of the state government, not a quasi-independent governmental entity
• Separate entity would need to be established to raise private funds and partner with the state financing authority under a formal partnership agreement
• As in the Connecticut model, a state would determine whether it could consolidate other funds into the green bank authority
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Washington, D.C.
202.777.7700 The Infrastructure Bank Model
• Clean energy projects and general infrastructure projects to be financed by a combined state energy and infrastructure authority or bank
• Because of differences between infrastructure and clean energy finance, we recommend that the bank create separate “windows” for each
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Washington, D.C.
202.777.7700
The Role of State Green Banks
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Kenneth Berlin Senior Vice President
(202) [email protected]
www.coalitionforgreencapital.com
Reed HundtCEO
(202) [email protected]