A recent report by the architects of the Connecticut Clean Energy Investment Authority, the Coalition for Green Capital and the Brookings Institution focuses on a critical issue for states: the creation of state-based, public-private partnerships to leverage private capital for clean energy projects. With dwindling state budgets, reductions in incentive programs and falling prices for renewable energy resources, the timing is now for states to consider such financing structures.
Consumer purchased energy resources such as energy efficiency or distributed solar panels have never fit well within our existing utility model. Utilities charge consumers for energy on a monthly basis, having financed their investments over time. Yet, when a consumer purchases efficiency or generation resources, traditionally they need to make a one-time, large up-front expenditure and then see their savings accrue over time through a reduction in their utility bill.
Clean energy financing institutions such as the Connecticut model provide an alternative for consumers. Using leveraged financing, a consumer can replace a portion of their monthly utility payment with a payment for energy efficiency or solar power. As a result, they can protect themselves against rising utility bills and increase the value of their home or business while lowering their utility costs at the same time.
Clean Energy Financing Instruments are used in a variety of ways to incent the purchase of energy efficiency, renewable energy, project finance and even commercialization of technologies. The green bank concept makes this possible by leveraging public funds with private capital.
The Brookings report shows how public funds can be used as a credit enhancement mechanism to drive private capital into the market. In some structures the public money is used as subordinate debt to assume the primary risk in a loan, in other structures the public money is used to provide low interest capital that can be blended with commercial rates. Additionally, state green banks can provide capital at more advantageous terms to drive down the cost per kWh for renewable energy.
As they found in Connecticut, the state could reduce or even eliminate some one-time incentives and grants by channeling funds toward the Clean Energy Investment Authority. In this way, rather than simply expending ratepayer or taxpayer funds, the funds are invested and paid back to the green bank over time. Furthermore, by reducing risk for private capital, every dollar of public money leverages private investment at low interest rates.
The Brookings report outlines these approaches to assist states in developing effective, low cost financing instruments that can leverage private investment toward desired public objectives of more efficient, clean and stable energy systems using home-grown energy while driving economic development and job growth.
That’s a winning combination for any Governor.
image: Clean Energy Concept via Shutterstock