HB&C has been providing advisory services in the formation and development of green banks for some time. We’ve assisted in the development of the Connecticut Green Bank, Michigan Saves (a not-for-profit green bank entity serving the State of Michigan) and most recently, we’ve provided advisory services for the development of a green bank in Montgomery County in Maryland and a stakeholder group for the State of Colorado.
Despite the national interest in green bank development, we continue to see confusion in the marketplace over the appropriate definition, roles and activities of a green bank (sometimes called an Energy Investment Partnership). Perhaps this is because the set of activities a green bank can undertake vary a lot, yet ultimately these activities are meant to improve the following conditions in the market in which it is operating, which we at HB&C refer to as “The 3 C’s”:
- Capital: Is money available to the various market sectors at attractive terms (interest rate, tenures, collateral, etc.)?
- Confidence: Are capital providers, borrowers and contractors all confident about the form and source of financing being used?
- Convenience: Is it easy to incorporate financing into the clean energy project or are there many steps, conditions and processes that slow things down?
Recently, Dave Carey of HB&C made a presentation to Montgomery County, based on our long history in working with green banks, to help them frame the development of such an entity. Dave identified that, at the highest level, all green banks share the following features:
- Structure: You may be surprised to learn that green banks are not necessarily governmental organizations. A green bank can be a government agency, instrumentality, or, in the case of the Michigan Saves program, a private non-profit organization.
- Goal: Increase the flow of private capital to clean energy projects.
- Strategy: Increase the attractiveness of clean energy investments by reducing risk and increasing standardization and project volume.
- Governance: Direct government administration or board of directors (with or without public appointees).
It’s helpful to begin thinking about a green bank, as it is sometimes called, in terms financing instruments and market sectors. In other words, a green bank is meant to remedy gaps in the clean energy finance market in which it is operating. Thus identifying the mission and function of a green bank must be preceded by gaining an understanding of the clean energy financing gaps that exist in the market it is intending to serve.
In Colorado, HB&C recently conducted a comprehensive clean energy finance gap analysis specifically for this purpose, the results of which should be published to this site in the near future.
Next week, in part 2/2 of this blog post, we’ll delve into the types of solutions for market gaps and the roles that a green bank plays in providing those solutions.