CEFF: Which states do you foresee adopting green banks?
Reed Hundt: That depends on how successful we are with the Green Bank Academy. There should be about 13 states represented. Hopefully, all of the attendees will come away with a renewed desire to create green banks.
Generally, I would say this: each state that’s going to see its coal plants being phased out because of EPA regulations is going to want to create a green bank in order to deliver cheaper clean energy as a substitute for the coal energy.
Otherwise, if they don’t think of a way to provide low-cost financing to lower the price to the consumer, then there’s going to be rate shock. There’s going to be a tremendous amount of consumer pushback. Politicians will be very unhappy. Green banks lower the prices to the consumer as the green transition from carbon to clean energy occurs.
The European countries are backing off of their mandates for clean energy. That’s because they did not provide green bank financing to the clean energy substitutes. As a result, what was going on was that the European countries were causing tremendous price increases for electricity in the middle of this terrible, five-year-long recession, and the European people were getting angry. But this was a big mistake by the Europeans. They should have provided financing support for the clean energy that they were mandating under their regulations.
CEFF: In addition to states that have coal plants that are going to be shut down under the new EPA regulations, are there any other states where this model might be particularly successful?
Reed Hundt: Yes. Maybe a state that has a renewable portfolio standard (RPS) or renewable energy standard (RES)—a standard that is compelling a shift in generation from carbon to clean energy. And if that occurs, if you want to lower the price to consumers, you’ve got to provide the upfront financing to new projects that are demanded by the RES. Otherwise, an RES will raise prices.
CEFF: And would there be possibilities for states to finance regional projects?
Reed Hundt: Yes. Let’s say you wanted to finance a wind project where the wind on the grid was going to end up serving four or five states. Why not co-finance it?
CEFF: Are there federal policies that you see as important to facilitate the success of green banks at the state level?
Reed Hundt: Yes, there are a number of them.
First, it’s essential that the EPA be rigorous and prompt in laying out the new regulatory framework to protect us from these dangerous emissions.
Second, it’s very important that Congress maintain the critical tax credits for solar and wind, because even with green banks, states don’t have enough capital to make up for the beneficial impact of the tax credits.
Third, it’s very important that the Department of Energy consider making grants to nonprofits that will help states set up green banks—we’re talking about small amounts of money that are very, very critical. And frankly, the Department of Energy has not made a thorough commitment to help states with the work of setting up green banks. It would be good if the Department of Energy got religion in this respect.
CEFF: What are the Coalition for Green Capital’s goals for the Green Bank Academy program?
Reed Hundt: We know that there’s strength in numbers. If many states have green banks, and they’re all following the same processes, then private investors will be more and more interested because they won’t have to look at energy projects on a state-by-state basis. They’ll see that 10 or 15 or 20 states are providing essentially identical financing practices.
This will take everyone a long way down the road of standardization, and standardized forms in financing mean that the cost of capital goes down. That’s good, because the lower the cost of capital, the more solar, the more efficiency, the more wind. So it’s all about lowering the cost of capital through providing increased state financing, much greater standardization, and a much bigger awareness in the private sector about doing the right thing for the climate, at the same time.
CEFF: It’s interesting that you mention standardization, because it seems that there are a few different ways that a state can go about designing a green bank program.
Reed Hundt: I think you put your finger right on it. You can have more than one method of organization, more than one capitalization, but you really don’t want to have a lot of variation in the financing methods. You want standardization.
CEFF: So one of the major takeaways for attendees of the academy is that standardizing these loans is critical to the whole green bank concept.
Reed Hundt: Absolutely, and in fact, that’s one of the primary missions of New York’s bank, because of course New York is the financial capital of the world, and the people who are in the New York green bank are very knowledgeable about standardization. I think your readers should know that New York will have a lot to say on that.
This article was originally published by the Clean Energy Finance Forum, a publication produced by the Yale Center for Business and the Environment. You can subscribe to our newsletter by visiting http://www.cleanenergyfinanceforum.com/contact/.