State Clean-Energy Banks Can Reduce Reliance on Subsidies and Lower Costs, Report Says

New finance entities being developed by a handful of states to foster clean-energy development can reduce the dependence of such projects on federal subsidies and help lower costs, says a new report from the Brookings Institution.

The mechanisms, which offer a way to leverage scarce resources with sophisticated banking and finance strategies, could offer an alternative route to catalyzing clean-energy deployment at a time when waning congressional support for renewables, combined with state fiscal challenges, is jeopardizing the availability of government finance for wind, solar, and other renewables, the report says.

Connecticut surged to the forefront of this new wave of public-private financing last year, with the creation of the quasi-public Clean Energy Finance and Investment Authority (CEFIA). The new bank, created with the state’s passage of an omnibus energy reform law last year, is the nation’s first full-scale clean-energy finance authority. It combines existing state clean energy and energy efficiency funds, so as to attract private investment in the bank and leverage its capital with private capital to scale up clean energy deployment in the state, the report says. The bank will create programs that use credit enhancements, like loan-loss reserve funds and interest rate buydowns, which create greater certainty for investors and are critical tools for attracting private capital.

CEFIA offers incentives and innovative low-cost financing to encourage homeowners, companies, municipalities, and other institutions to support renewable energy and energy efficiency, according to the bank’s Web site. One of the bank’s stated goals is to implement strategies that lower the cost of clean energy to make it more accessible and affordable to consumers by reducing reliance on grants, rebates and other subsidies and moving toward innovative low-cost financing of clean energy deployment.

The Brookings report highlights two other bank models that state leaders can use, including:

• Repurposing portions of one or more existing financing authorities from a grant to a lending model and then through a partnership agreement, combining the financing authority’s funds with private funds; and
• Creating a combined state energy and infrastructure authority, or bank, from an existing infrastructure bank. The new bank would fund energy projects and general infrastructure projects.  The California Infrastructure and Economic Development Bank could serve as a model for this approach, the report says.