We continue to get closer to achieving net neutrality thanks to local, state, and federal climate policies and goals. Generous rebate and incentive programs lower the financial burden to develop and implement clean technologies, but oftentimes consumers and green organizations still rely on private loans, investments, and financial backing. However, lending and investing in new technology from a young industry doesn’t come without its perceived risks, so, it can be difficult to obtain funds from traditional lenders to upgrade to green technology.
This is where green banks can come in – they’re specialized lenders created to address gaps in traditional lending, helping accelerate investments in clean energy. In this article, we explain what green banks are and the benefits of working with them.
- Green banks provide innovative financing opportunities to accelerate the transition to clean energy.
- Green banks are typically quasi-public entities, which means they are state-chartered and subject to policy objectives but also operate independently. However, they can also be public or private entities.
- Historically, green banks in the United States have been established at the state and local levels to help achieve the climate goals of that region.
- The Inflation Reduction Act (IRA) includes an investment of $27 billion for the Greenhouse Gas Reduction Fund (GGRF) to support green banks.
- Use the EnergySage Marketplace to connect with solar installers approved by your local green bank!
What are green banks?
Green banks provide financing opportunities to accelerate the transition to clean technology. By addressing traditional market gaps and creating a more appealing and attainable investment, green banks can also reduce the cost of energy to ratepayers and attract more private investors to impactful cleantech projects. Like traditional banks, green banks offer financing to both individuals and organizations.
Normally, green banks are public or quasi-public entities that leverage public funds to facilitate private investments. In other words, green banks are usually state-chartered, linked to public policy, and often overseen by a board of directors that includes at least some public officials, but operate independently from the government at the same time.
How green banks work
Green banks are established by legislation, historically at the state and local levels in the United States, to help reach climate goals. Since green banks are subject to local policy – which differs from state to state and city to city – they do not all operate in the same way. Even still, there are common characteristics and practices, including:
- A focus on climate-resilient investments
- Publically funded at least in part
- Operational independence from the government
- Innovative financing solutions that remove barriers to clean energy investments
Although driven by the mission to expand green technology and not primarily by profits, it’s important to note that green banks are still banks – the money lent from them is expected to be repaid. The cost of their capital, however, is lower than that of a traditional bank. Additionally, green banks offer innovative tools to mitigate risks, remove barriers, and funnel more capital to clean technology. Examples include:
- Debt forgiveness for decarbonization: measures eligibility of debt forgiveness through the impact a project has on greenhouse gas emissions.
- Partial loan guarantee: an agreement between green banks and private lenders. In the case of default on a loan for solar installation, energy-efficient upgrades, etc., the green bank will cover part of the debt owed by the borrower.
- Green bonds: these are bonds intended to fund climate-related projects and may come with tax incentives.
Benefits of green banking
Most climate policies currently set are ambitious and require quick action to achieve. Without the necessary financing, though, clean energy technology is not able to scale or mature. Green banks offer low-cost capital where traditional banks face investment barriers that prevent individuals and organizations from obtaining a loan. This means fewer smaller projects are overlooked and are therefore given a chance to grow their impact, allowing more individuals to install solar panels. When access to clean energy technology expands, the cost of energy falls: a win-win!
Is there a national green bank?
Currently, green banks are established at the state and local levels and are limited in service to residents and businesses within their jurisdiction. If you live in Massachusetts, for example, you’re not eligible to apply for Connecticut Green Bank’s Smart-E Loan for solar financing. A federal green bank, on the other hand, would be accessible to everyone regardless of their state’s programs.
As of today, there is no central green bank. However, the Inflation Reduction Act (IRA) includes an investment of $27 billion for the Greenhouse Gas Reduction Fund (GGRF) to support green banks. Put simply, this investment would allow for quick disbursement to “eligible recipients” – broadly defined as state, local, and tribal governments as well as non-profit organizations, funded by public or charitable contributions, that provide financial assistance for the development of renewable energy projects. There is not an established number of grant recipients, so it’s possible that all the funds could be disbursed to a single recipient – or to a National Green Bank.
So, will there be a central green bank? It’s unclear, but no matter how the funds are disbursed, green banks are bound to grow across the country.
Working with green banks
Many green banks work with approved solar installers to provide homeowners options for solar lending. If you’re interested in financing your solar installation, join EnergySage and leave a note to let installers know you’d prefer to work with a green bank. Don’t have a green bank in your state yet? Luckily, there are other trusted solar lenders on the market – connect with local installers in your area today to learn more about them!