Green Bank Financing to Accelerate Solar Deployment

Coalition for Green Capital Jeffrey Schub, Executive Director Midwest Solar Expo, Minneapolis, MN May 23, 2017

CGC is the leading expert on Green Bank model & institution formation

Thought Leadership

Advocacy

Consulting

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• CGC, a non-profit, partners directly with governments and NGOs to study, design and implement Green Banks

• Helped design & create 6 GBs, which have catalyzed over $2 billion in clean energy investment

• CEO Reed Hundt, former chairman of U.S. FCC

• Supported by major global foundations

• Green Bank Overview

• Success to Date

• Growth & U.S. Trends in Green Banks

• Green Bank Creation & Design

Table of Contents

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Green Banks use public dollars to drive more private clean energy investment, deploy affordable clean energy

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Capital Markets Green Bank Projects &

Consumer Demand

• Are focused institutions, created to maximize clean energy adoption

• Use public-purpose money to de-risk & leverage private capital

• Provide financing in many forms to underserved market sectors

• Are market-oriented and flexible, and aim to increase consumer protection, information transparency, and ease of adoption

• Seek to be self-sustaining, and produce dividends for taxpayers

• Complement existing actors and programs, bridging gaps in capital supply chain

Why Green Banks? Because of importance of dedicated local institutions

Specific Focus Local Capital Formation

Prime the Pump

Take 1st or 2nd Loss

Carry Market-Making Costs

Convene & Organize

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Green Banks utilize a common set of techniques and finance tools to address targeted market barriers

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Multiple Finance Tools

• Loans

• Credit Enhancement

• Warehousing & Securitization

Innovative Mechanisms

• PACE/Local Improvement Charges

• On-Bill Recovery

• ESAs

Market Development

• Contractor Training

• Info Transparency

• Standardization

• Demand Aggregation

Efficient & Rapid Market Growth

• Green Bank Overview

• Success to Date

• Growth & U.S. Trends in Green Banks

• Green Bank Creation & Design

Table of Contents

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Green Banks around the world are working!

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Example: CT GB’s Residential Solar Tax Equity Fund expands customer access to rooftop solar

• CGB created unique public-private financing platform

• Product enables local developers to offer financing to customers who otherwise would have to pay all upfront

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Green Bank -Subordinated Debt -Loan Loss Reserve

-Equity

Private Investors -Senior Debt -Tax Equity

Residential Solar Lease

Fund

Local Installers

Solar Customers

Increased financing allowed reduction in rebate level, growing market while lowering public cost

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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Cost to Consumer Subsidy Installed Capacity

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Green Bank Launched

CT Grows Residential Solar With More Financing While Reducing Subsidies

Source: Energize CT, Residential Solar Investment Program, “Section 106 Data – Information on Installers and Costs – Updated April 1, 2016,” available at http://www.energizect.com/your-home/solutions-list/residential-solar-investment-program.

CT Green Bank receives far more private leverage on its capital than the state’s incentive programs

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$4.65x

$0.90x

From 2014-2016 the Green Bank leveraged $4.65 of private investment per dollar of public

investment…

…while the Incentive Programs leverage $0.90 of private investment

per dollar of public investment.

The Green Bank’s products are designed to “crowd-in” capital and get more bang

for the buck.

Notes: Leverage is measured by as private investment in projects divided by public investment in projects, no matter the form of investment (incentives or finance). For Utility Programs, private investment is equal to the “Customer Cost,” the portion of a project cost not paid for by incentives.

• Green Bank Overview

• Success to Date

• Growth & U.S. Trends in Green Banks

• Green Bank Creation & Design

Table of Contents

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Green Bank trends in the U.S. are all up

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• Since 2011, six state and local Green Banks have been established in the US

• As of mid FY17, US Green Banks have sparked > $2 billion in energy investment, with majority of dollars coming from private sector

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2012 2013 2014 2015 2016

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# of Banks Cumultive Investment

Notes & Sources: CGC analysis; Green Bank numbers for fiscal year

Emerging trends in Green Bank space

• GBs moving to new Purple & Red states

• Must make clean energy accessible to all

• It’s really up to states (though Feds could help)

• Increasing interest in gov’t-adjacent solutions

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In the U.S., state & local Green Banks are spreading, with growing interest from all regions

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CGC Now Working on Green Banks in 15 states

CA

CT

DE

MD

VT

NV

NY HI

RI

MA

DC VA

CO

MO

PA

More Green Banks are being developed to be “government adjacent”; private but still connected to government

DC

• Legislation to create quasi-public with board

• Capitalized with public funds

Mont Co

• Legislation to create a non-profit with mixed public/private board

• Capitalized with Public Funds, but will also raise private funds

NV

• Legislation to create non-profit with mixed public/private board

• Will be capitalized primarily with private funds

PA

• No legislation – will be created as non-profit, but work with govt

• Will seek to raise public and private funds

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• Green Bank Overview

• Success to Date

• Growth & U.S. Trends in Green Banks

• Green Bank Creation & Design

Table of Contents

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Green Banks have similar operating principles, precise organization form and product mix varies

EIP Form Goals

Markets

Barriers

Products

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EIP Form

Political constraints

Existing Institutions

Available Capital Sources

Expediency

Three common forms, with varying degrees of reliance on government for creation, capital, power

Public

• Directly part of government

• Either an independent agency, or division of existing

Quasi-Public

• New or repurpose wholly-owned instrumentality

• Typically has Board mix of govt and non-govt Directors

“Government Adjacent” Private Non-Profit

• Corporation is completely independent of govt

• Ideally still connected to government in some way…

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Successful examples of operating Green Banks in all forms

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Public

Quasi-Public

Private Non-Profit

GBs can (and do) have wide set of goals, some of which are opposing – can’t do them all

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• Reduce GHG Emissions

• Lower Energy Prices

• Lower Energy Spend

• Increase Renewable Market Penetration

• Create Jobs

• Promote Economic Development

• Improve Social Equity

• Increasing Climate Resiliency

• Maximize Clean Energy Deployment

• Spur Local Tech Innovation

• Increase EV Adoption

Potential Green Bank Goals

Growing set of proven products and solutions to address range of potential target markets

Target Market Barriers Products Residential Efficiency • Long payback period

• Trust in savings • Loan security • Small projects

• WHEEL • Standard-Offer LLR (CT &

MI) • R-PACE

LMI SFH Solar • Cost of solar power • FICO requirements

• Solar Lease + EE Upgrade (CT)

LMI Solar Rental • Split incentives • Community Solar (CO)

Commercial Efficiency • Low capital priority • Long payback period • Difficulty underwriting

• C-PACE • Direct Lending (for small

projects)

Municipal Efficiency • Procurement rules • Low capital priority • Debt limits

• Bundled ESCO Bond (DE) • Muni Bond Aggregation (RI)

Innovative Grid-Tied Renewables

• Perceived risk • Lack of liquidity

• Market-Responsive RFP Fund (NY)

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CGC works with state, federal and international stakeholders through multiple stages GB creation

Complete Study to Determine Green Bank Objective,

Products, Structure

Develop Green Bank

Implementation Plan

Stand-Up & Operationalize

Green Bank

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See Resource Center on CGC Website for Past Green Bank Studies

Thank You

Jeffrey Schub, Executive Director

Coalition for Green Capital

jeff@coalitionforgreencapital.com

Twitter: @CGreenCapital

Green Banks use multiple structures to draw in more investment capital at better financing terms

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Green Bank Capital

Private Capital

Green Bank Origination

Private Purchase of Portfolio

Senior Private Capital

Green Bank Credit

Enhancement

Project

Project

Project

Credit Support Co-Investment Warehousing

PACE financing is new construct designed to increase lending security, make building investments appealing

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• PACE lien is new tax assessment

• PACE is lower cost, longer term than commercial loan

• PACE seniority secures repayment

• PACE stays with property upon sale

Commercial Building Capital Stack

Mortgage

Equity

Prop Tax & PACE Lien

Example: CGB’s C-PACE enables secure efficiency investment at scale

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Green Bank

Tax Collector Commercial

Building PACE Assessment

Loan Payment Loan

Private Investors

Portfolio Securitization + Credit Support

Cash Purchase

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Centralized State-wide Green Bank Administration

Example: Green Bank offers standard credit enhancement to retail lenders to serve the market

• Green bank defines terms of loan loss reserve and risk-mitigation mechanism for residential EE & RE loans

• Banks enter market with reduced risk and offer good terms

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Green Bank

Loan Loss Reserve

Commercial Bank

Commercial Bank

Commercial Bank

Commercial Bank

Borrower

Borrower

Borrower

Borrower

Project Loan

Project Loan

Project Loan

Project Loan

Example: Green bank loan warehouse for SMB building upgrades, following by private sale

• Green bank directly issues loans for project, and builds portfolio that has scale, diversified risk

• Then sells portfolio to private investor to recycle capital

• Good for projects too small for PACE (<$100k)

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Green Bank

Commercial Building Upgrade Project

Loan Repayment

Loan

Private Investors

Portfolio Securitization + Credit Support

Cash Purchase

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Example: Green Bank can work with private partners to create programs tailored to low-moderate income

• Green bank offers solar financing, coordination with relevant agencies, and market info

• Private party installs simple efficiency package, then solar, through single financing repayment – cash flow positive

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Green Bank -Rooftop solar

financing

Private Partner -Acquires customer -Audit & Installation

-EE Financing

LMI Households

Energy Savings

Agreement

Solar Lease

Alternative Underwriting –

Utility Bill Payment History