The Clean Energy Finance Forum spoke with Reed Hundt, CEO of the Coalition for Green Capital, which has led the movement to create green banks in the United States during the last several years. Green banks are financial institutions that use public funding to leverage private financing of clean energy.
Hundt said it is urgent for states to start green banks to finance clean energy as they move away from coal and toward meeting their renewable energy standards. He said green banks can multiply financing resources by a factor of 10.
To build momentum for the creation of green banks, the Coalition for Green Capital hosted the Green Bank Academy in Washington, DC on Feb. 6 and 7. The academy is a program that invites selected state energy and finance officials to learn how to establish and manage green banks.
CEFF: How does the green bank model work?
Reed Hundt: We’ve got two good examples in Connecticut and New York. The state government authorizes the creation of a corporation. It can be a subsidiary of some government agency or a renaming of an existing agency. They capitalize it by collecting funds. And they give it the mission of providing financing — loans, guarantees, or credit buy-downs — for clean energy projects. The goal is to provide financing with low interest rates and long payback times. These terms permit the installation of solar or efficiency measures in buildings where the owner doesn’t pay any money upfront. The payback comes from the owner’s energy cost savings over time.
CEFF: What are some of the main factors that a state should consider in designing a green bank program?
Reed Hundt: The first thing that you need to have is adequate expertise among the employees. There are a lot of bankers who want to do good for the world and would be happy to participate. States should hire these types of people to run their green banks.
Second, it’s very important for state green banks to put all their money to work. A bank can have cash sitting in drawers and it’s not very effective. It’s really important to get the money out, get it to work. That means that you need to offer the rates that the market will snap up.
Third, it’s really important to have metrics that tell you how many clean energy and energy efficiency projects are getting installed.
The United States absolutely needs to create clean energy jobs in America and it needs to be leading the world to a new power platform. This is described in my new e-book, Zero Hour.
CEFF: Have there been any obstacles to adoption that states have faced in adopting green banks?
Reed Hundt: I would say that in every state it is necessary to have a conversation with the commercial banks so that they understand that you’re not competing with them. In fact, you don’t want to compete with them — you want them to engage in the same activity and to provide their own capital. They don’t really know what a green bank is — so you have to have that conversation in every state. And you have to have it early.
The second thing you have to do in every state is focus on the end user and make sure that the end user is truly going to be better off. You’re not just counting on the end user to want to be green. They need to want to get cheaper energy. And that focus is important. Sometimes, the local utility won’t share that goal — sometimes, the local utility will think, “I don’t really want the price of energy to go down.” So the governor or the legislature has to decide if they want the price of energy to go down. Those are the main threshold issues.
CEFF: There was an interesting exchange over the last couple of weeks in the DC publication The Hill, where Phil Hall wrote a scathing editorial about New York’s green bank and Richard Kauffman responded. There was a point in the article suggesting that very well-funded financial institutions should be the ones undertaking the kind of catalyzing work we’ve been talking about. So, should we be starting green banks?
Reed Hundt: In Connecticut, which is a state of only 3 million people, we are adding $40 million of capital to the state green bank every year. We are finding so far that — hold on to your hat — about 10 times as much capital comes in from the private sector whenever we put a dollar in.
That means that if we can continue at this pace, we would be catalyzing—not just with our money but with the private money too—catalyzing about half a billion dollars of clean energy investment every single year. This is a state of only 3 million people.
In New York, the governor is planning to put in a billion dollars of capital. If he gets, not even a ten-to-one, but a five-to-one ratio in terms of the private capital, then he’ll be putting $5 billion in investment for a state of 19 million people.
And we’ve also discovered that the money that goes out in the financing comes back in about six years, because people are paying us back, so you get to recycle the money. Over the course of the decade, roughly speaking, you’ve doubled all of the numbers that you’re stating.
If every state, or even half the states, had green banks that were as active as Connecticut and New York, you would be seeing several hundred billion dollars being invested in clean energy and you would see that the prices delivered to the consumers are lower than existing electricity grid prices.
So this is a very proactive, very effective way to make the transition to cheaper and cleaner power. But I have to tell you, that’s why you’re going to see criticism, like in the letter you were just talking about.