First New York Green Bank deals to bring up to $800MM in Clean Energy Investments to New York State
Today, the New York Green Bank (NYGB) announced its first planned transactions. It's a broad, impressive set of offerings that could have transformative impact in New York and nationally by doubling down on boldness and creativity in the clean energy finance space.
Clean energy investment is growing rapidly but nowhere near rapidly enough to address climate change. To do that, the sector needs massive amounts of the commercial capital that banks and bond markets provide. And to attract that, the sector needs replicable, proven business models.
Often, lenders perceive clean energy as too niche or riskier and harder to invest in than traditional sectors. To address this, New York state launched NYGB, a public financial institution funded by ratepayer dollars and staffed by seasoned investment professionals. NYGB's mandate is to lead the way in reducing the perceived risks around investing in clean energy technologies to massively increase clean energy investment in New York State. NYGB's method is to partner with the private sector in innovative, replicable transactions, to speed the transition to the day when all energy in New York is clean energy.
NRDC's Center for Market Innovation worked with the Governor's staff to develop NYGB in 2012 and 2013.
Here are some highlights from the initial transactions:
Amount: If all of the deals go forward, NYGB will have mobilized $800MM in additional capital in New York. It estimates that the total carbon dioxide reduction from these investments is comparable to removing 120,000 cars from the road or planting 15 million trees, each year.
Scope: The initial deals involve a wide range of clean energy technologies – including solar, combined heat and power (CHP) and energy efficiency retrofits of buildings.
Partnerships: NYGB is partnering with a wide variety of actors, from national and international banks like Bank of America/Merrill Lynch, Deutsche Bank and Citi, to local banks like First Niagra and M&T, to innovative specialist clean energy companies like Renewable Funding, Ameresco and Sustainable Development Capital.
Markets: The initial deals aim at a variety of markets all over New York State. The deal with Renewable Funding, a pioneer in clean energy finance for homeowners, would increase the number of New Yorkers that have access to finance for clean energy improvements to their homes. The transaction with Deutsche Bank would allow the bank to expand its energy efficiency program in the underserved commercial real estate sector, while the BoA/ML transaction would focus on increasing that bank's loans to commercial entities for clean energy equipment like CHP. The partnership with New York regional banks Niagara and M&T would help those banks gain confidence in the commercial solar market by de-risking an upstate project on a brownfield, thereby paving the way for other similar banks. The proposed program with GreenCity would focus on getting combined heat and power deployed in New York's largest buildings and and ultimately creating a portfolio of such assets that would be attractive to long term investors. Ameresco, a leader in pioneering energy as a service through energy service agreements, power purchase agreements and leases, would use NYGB funding to de-risk projects to get other lenders comfortable with such innovative, "no money down" products.
In the initial deals, we can trace certain themes. NYGB's strategy is to:
- Develop the demand for clean energy by providing capital to innovative companies, like Ameresco, Renewable Funding and Sustainable Development Capital, that have a proven track record of making clean energy projects happen, in other words, those who know how to stoke demand and get customers to buy clean energy. For example, Renewable Funding is administering $300MM in residential energy investments in California alone and the NYGB investment should make similar scale possible in a tailored New York program.
- Increase the supply of green debt capital by supporting large banks that have demonstrably successful clean energy programs and regional banks with a demonstrated commitment to understanding the space. The deals with the large banks aim to expand their initial success into other areas where the banks are not yet comfortable. The local banks, on the other hand, serve markets that the big banks may overlook because of deal size, location or lack of familiarity with borrowers, but these banks often don't have the expertise to aggressively enter these markets. NYGB seeks to transform both markets.
- Target financing structures than can be replicated and scaled. A major focus of the initial transactions is to partner with entities whose business model is to make clean energy deals as simple and as cookie-cutter as auto loans. The best financial technology to achieve this is through standardized "no money down" service contracts. If successful, these deals can be aggregated sold to other investors and the proceeds of the sales reinvested in more clean energy.
- Provide project loans to support the creation of new markets either by bringing a new class of lenders, like local banks, into an underserved primary market, or by helping to create a portfolio of projects to create a secondary market, like CHP assets under long term contracts with large building owners.
We'll be providing additional thoughts and details on the NYGB strategy as more details become available, but these initial proposed transactions are an impressive and decisive start.