Where some investors see red, these ‘banks’ see green

Solar panels | Mark Lennihan / AP Photo

States are calling on public finance institutions to push forward a green agenda and create jobs as they plan their economic rebound after the coronavirus pandemic.

New Jersey adopted the idea in April, saying it will set up a green bank by the end of the year to finance environmentally friendly infrastructure. The state is following in the footsteps of Connecticut, New York and other states that provide loans and grants to fund carbon reduction projects, such as community solar and energy retrofits.

As other lenders pull out during the economic downturn, taxpayer-backed green banks can help the recovery by keeping money going to construction projects, supporters say. Green banks in New York and Connecticut, for example, continued to fund during the pandemic even as many homeowners and small businesses put projects on hold.

The New Jersey Economic Development Authority will seed its green bank – essentially a pot of capital, not an actual bank – with some $ 12 million in annual revenue it collects from the Regional Greenhouse Gas Initiative, a cap-and-trade program of carbon. The project will prioritize projects that offer vocational training and create jobs.

“Access to affordable financing and skills training will be key to helping New Jersey rebuild better,” said Pari Kasotia, Mid-Atlantic Director for the nonprofit advocacy group Vote Solar. “By being able to invest in clean energy now, New Jersey’s low-income and environmental justice communities will also be more economically resilient to the next crisis, thanks to lower energy bills. “

While banks aren’t new – Connecticut launched the nation’s first in 2011 – their numbers are growing. In 2019, the nine global members of the Green Bank Network pledged a total of nearly $ 15 billion, raise $ 50 billion in public and private capital. Now the coronavirus pandemic is giving them a chance to flex their muscles as other lenders put the brakes on their business.

The money is invested in projects that provide environmental, health, social and financial returns. And the institutions are designed to demonstrate to Wall Street and local banks that investing in clean energy can be safe.

“At a time when we had such a strong negative economic shock, all sources of capital are pulling back a bit [but] green infrastructure is widely recognized as a clear, safe and solid place to invest money, ”said Brian Sabina, senior vice president of economic transformation at the New Jersey Economic Development Authority.

At New York, Green Bank chairman Alfred Griffin said his team was modifying agreements with loan recipients to keep people on the payroll and provide flexibility over construction timelines to deal with chain issues. supply related to Covid-19.

“The main goal is to get these businesses back up and running and get these people back to these jobs,” Griffin said. “Market needs are changing, as are today, what we are seeing in this unprecedented time.”

Bryan Garcia, president and CEO of Connecticut Green Bank, said his group was resetting contract terms, restructuring borrower debt and allowing late payments. But bank loans are generally low risk, and borrowers – especially low and moderate income families – make payments.

“We expected them to be more delinquent,” Garcia said, but “they are paying their bills because they saw the benefit of reduced energy load and they don’t want to lose it.”

New Jersey’s initial investment of $ 12 million may not seem like much – New York established its bank with $ 1 billion in 2013 – but it will be “a ton of money” if it manages to attract private capital for it. launch new projects, said Jeffrey Schub. , Executive Director of the Coalition for Green Capital, a non-profit organization that advocates for the creation of green banks.

“This is obviously not enough to decarbonize the entire economy or re-employ the millions of New Jerseyans who are out of work, but it is the beginning you need to base yourself on because the hardest thing to find is the first venture capital investment, ”said Schub. “It can be a way to prime the pump, to bring private capital back to the market. “

New Jersey could learn from New York and Connecticut’s focus on investing in community solar power for households that rent or simply can’t afford solar power. Access to clean energy technology lowers utility costs and makes a market segment traditionally perceived as risky more attractive to private investors.

“At the end of the day, it’s a wealth building program,” Garcia said. “It reduces the amount of the monthly budget that a low to moderate income family spends on energy and allows them to save more and use it for other things. “

But as states struggle to close the budget gaps torn by the coronavirus pandemic, green banks could face a challenge from some of the policymakers who created them.

Connecticut’s Green Bank is funded by $ 26 million from the state’s clean energy fund and about $ 4 million from revenues from the Regional Greenhouse Gas Initiative. But in fiscal 2018 and 2019, state lawmakers embezzled $ 28 million in clean energy funds and $ 4 million in greenhouse gas funds that were slated for the bank.

Bank officials filled the void by issuing bonds, cutting operating expenses and transferring staff to an associated but independent nonprofit.

“We are now on the path to organizational sustainability,” Garcia said. “The interest income we receive from project financing using the Clean Energy Fund and RGGI Allocation proceeds is close to covering our operating expenses.”

New Jersey officials must decide how to set up its green bank to deliver the best value for money economically to withstand shifting political tides. Part of that will involve figuring out what type of entity the green bank will be: a specialized state entity, like the one in New York, an independent quasi-public institution like the one in Connecticut, or something entirely different.

New Jersey “will move like hell to attract as much capital as possible to get projects started,” Sabina said. “This is going to be important as part of the recovery.

CORRECTION: An earlier version of this report misidentified the New York Green Bank. It is a state entity.

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