Green Banks: Reliable Financing for Renewable Energy
Recently, Demos’ Mijin Cha discussed New York Governor Andrew Cuomo’s $1 billion Green Bank proposal. The plan would create a fund, combing public and private capital, directed at spurring investment in clean technology and promoting private enterprise in the sector.
If Governor Cuomo’s Green Bank becomes a reality, New York will be following in the footsteps of its neighbor, Connecticut, which established the Connecticut Clean Energy Finance and Investment Authority (CEFIA) with a mission “to achieve cleaner, cheaper, and more reliable sources energy through clean energy finance.” CEFIA is funded through a $0.001/kWh surcharge on residential and commercial electric bills, proceeds from the Regional Greenhouse Gas Initiative (RGGI) auction allowances, private capital, and federal funds and grants, among other sources. The funds then go to make loans, issue bonds, and leverage existing capital to raise private dollars, all with the end goal of supporting clean energy and energy efficiency projects across the state.
The Brookings Institution published a paper on the potential of State Green Banks in September 2012, written by Ken Berlin, Reed Hundt, Mark Muro and Devashree Saha. The report found that state-level clean energy banks can provide stable and low-cost finance to promote deployment of clean energy projects in their regions. It recommended green banks as a strategy to "decarbonize" regional economies and scale-up the nascent clean energy and energy efficiency industry.
Promoting green banks, such as CEFIA and the proposed New York state entity, is critical because clean technology start-ups face many hurdles in transitioning from the research and development stage to actual deployment and commercialization. Producing renewable energy is a capital-intensive process and clean tech firms, as with any start-up, often face so-called "valleys of death" when available capital doesn’t meet the needs of the project. These shortfalls most often occur in the initial stage of development when funding is needed to convert laboratory research breakthroughs into viable products and later on in the innovation cycle when funds are needed to move the new technology into the commercialization stage. Private capital is typically unavailable or has dried up at these crucial junctures and many worthwhile innovative clean technology firms shutter due to lack of funds. For this reason, it is imperative to construct creative mechanisms to allow companies to bridge the "valleys of death" and become competitive in the marketplace.
The 2009 American Recovery and Reinvestment Act, otherwise known as the stimulus, pumped $90 billion into the development of renewable energy technologies. The unprecedented infusion of funds was a critical lifeline to a sector that was withering on the vine as a victim of the credit crunch following the 2008 financial crisis. These investments yielded impressive results, with non-hydro renewable energy production nearly doubling in the three years since the bill became law. Yet as federal funds dry up and Congressional Republicans block any efforts to support the growth of clean technology, the sector faces an uncertain future. The fiscal cliff deal offered a minor reprieve as it extended the expiring wind power tax credit for a year along with a number of other green provisions. However, these temporary piecemeal initiatives are no means to assuring steady, long term financing for clean technology.
Over this past summer, the International Energy Agency called for an additional $36 trillion to be invested in clean energy globally by 2050 to ward off climate catastrophe. Meeting this goal will require efforts from all levels of governments across the world. National, state, municipal, and local governments all should be exploring mechanisms to promote renewable sources of energy.
In the United States, Green Banks at the state level would ideally provide a bulwark against the vagaries of federal energy policy and act as a consistent and reliable source of financing for innovative clean energy technologies.