Private investors often shy away from new green energy technology until it scales. But it can’t scale without financing. Out of this dilemma came a handful of green banks to form public/private partnerships.
And now the world may soon see many more if a new international network succeeds.
Six green banks and two non-profit groups this week created the Green Bank Network to help bring the investment concept out of obscurity.
The network was announced at the 21st Conference of the Parties (COP21) underway in Paris, where participants are grappling with how the world will pay for the $53 trillion in new energy investment needed by 2035 to meet climate goals.
Green banks are government creations, designed to draw private capital for new energy efficiency and renewable energy projects. By putting up part of the money, green banks blunt some of the risk, making private investors – including institutional investors — more likely to participate.
Thirteen green banks now operate in the United States, United Kingdom, Australia, Japan and Malaysia, according to a new report on green banks by the Organization for Economic Cooperation and Development (OECD).
The money exists to revamp the energy industry, but too much of it still flows to fossil fuels, says the report, which was funded by Bloomberg Philanthropies.
“There is no shortage of available capital. The challenge for governments is to ensure that public policies and investment conditions facilitate a re-allocation of investment from high carbon to low-carbon and climate-resilient options,” says the report.
Government policy needs to help shift the capital toward efficient and green energy supply – which is where green banks come into play.
Creating green banks sends a signal to the market that a region wants to build a green economy, says the report. They are an especially attractive approach because they can customize investment to local needs. For example, Japan is using green development to help overcome slow economic growth as its population ages. Rhode Island wants to use its new green bank to reduce high electricity costs. Connecticut, which has nearly quadrupled annual green bank investment in three years, focuses on job creation.
In New York, the green bank’s work dovetails with the state’s Reforming the Energy Vision, a dramatic shift in power delivery and markets that elevates distributed energy technologies.
“We are seeing a great deal of interest in the governor’s Reforming the Energy Vision plan from the international community, and today’s announcement helps solidify New York’s position as a leader in global clean energy financing,” said Richard Kauffman, the state’s chairman of energy and finance.
The $1 billion NY Green Bank, the nation’s largest, most recently made low-cost financing available for energy efficiency and clean energy in up 12,000 homes, made solar available to 6,000 households and led to installation of 160 distributed wind systems.
Learn more about New York’s green energy efforts at the upcoming, “New York and Beyond: Advancing Microgrids Nationally with Lessons Learned in New York.”
One might ask: Why create green banks when there are so many other state and federal programs to encourage energy efficiency and green energy? As the OECD report points out, green banks take a different approach than government grant programs. They follow strict dictates to mobilize private capital using limited public funds, and use a range of financial instruments, such as senior and subordinate loans, bond-based financing, equity and risk mitigants.
In the U.S., green banks exist in California, Connecticut, Hawaii, New Jersey, New York, Rhode Island and in Montgomery County, Maryland.
The Green Bank Network will help spread the word about green banks and share lessons and strategies learned by existing green banks with those that want to start them. The network’s founding members are the Connecticut Green Bank, NY Green Bank, UK Green Investment Bank, the Green Fund (Japan), Malaysian Green Technology Corporation and Clean Energy Finance Corporation (Australia).
Initial funding for the network will come from the ClimateWorks Foundation. The Natural Resources Defense Council and the Coalition for Green Capital will create the network, with the OECD acting as facilitator between green banks and countries interested in creating them.
“Billions of dollars of investment must be channeled into renewable energy and energy efficiency projects over the next 15-20 years if the nations of the world are to fulfill their climate pledges,” said Shaun Kingsbury, chief executive of the UK Green Investment Bank. “The founding members of the Green Bank Network have impressive track records in drawing private capital to low-carbon infrastructure, but by building the first collaborative global clean energy finance platform we are sending out a signal that more can be achieved by working together.”
Are green banks enough to overcome financing problems faced by energy efficiency? What else is needed? Comment below or on the Energy Efficiency Markets Linkedin Group.