Most people agree that we need to reduce climate-changing emissions around the world. The question remains, how do we pay for it?
NRDC, in collaboration with the Coalition for Green Capital and six green banks, today announced we are establishing a Green Bank Network to help meet the financing needs for installing renewable energy and energy efficiency around the world. ClimateWorks Foundation has agreed to provide seed funding and the Organization for Economic Co-operation and Development (OECD) will use its convening power to help bring the network together.
As our world leaders gather in Paris to discuss global solutions to climate change, it's important to note that governments cannot do it alone. Private investors want and need to be part of the solution. That's where green banks come in.
Green banks are public entities created to partner with the private sector to increase investment in clean energy and eventually make it mainstream, no longer needing public assistance. The green bank model is quite new, with the first ones opening a few years ago in the United Kingdom and Connecticut. But financing is already rapidly expanding with other green banks opening in Australia, New York, Japan, Malaysia, and several other U.S. states. And they're already proving successful.
How green banks work
Green banks explore, with private investors, the barriers to private investment in new clean energy projects such as financing for solar leasing or financing for energy efficiency upgrades in commercial buildings.
The green bank then tries to lower these barriers by reducing the risk for the first investors through tools like credit enhancements (Example: a loan loss reserve by which investors don't lose money for the first 10 percent of lease holders who don't make payments). The credit enhancement brings the risk for this new financing arrangement down to an acceptable level, allowing investors to see through their own experience that the technologies work as advertised and that those pursuing clean energy projects (i.e. installing solar panels on their roofs) do, in fact, make their lease or loan payments.
After a track record of payment history, it is much easier for banks and other investors to observe the success in action and start making loans and leases without needing much if any help from the green bank.
Lack of history is in and of itself a risk for investors, and one hard to overcome without charging high interest rates that then would make improvements like solar panels or energy efficiency upgrades cost prohibitive for most people and many businesses.
Green banks help to lower these risks and bring in significantly more private money. In Connecticut, for instance, they have already brought in $10 of private money for every $1 the green bank has invested. And most of the green bank money should be repaid, enabling it to be loaned out again, increasing the ratio even further ($20:$1 with just one round of repayment). The UK Green Investment Bank is now the most active investor in the UK's renewable energy and energy efficiency sectors.
The Green Bank Network will spur more clean energy growth worldwide
The green bank movement is off to an important start, but we want to help it grow both in places with existing green banks and into new places that want to create green banks. Enter the Green Bank Network.
The founding partners of this major clean energy initiative are the UK Green Investment Bank, the Connecticut Green Bank, the Green Fund (Japan), NY Green Bank, Malaysian Green Technology Corporation and Clean Energy Finance Corporation (Australia), and the network plans to expand rapidly.
NRDC and its partners will develop a network for information-sharing between existing green banks and governments looking to develop new institutions, streamlining the process and making green banks even smarter.
As the world's leaders are gathered in Paris at the most important climate summit in history, we know now is a moment of unquestioned urgency and unrivaled opportunity.
The new Green Bank Network can help countries around the world meet the goals coming out of the climate conference by helping to pay for upgrades to use our energy more efficiently and harness more power from the wind and the sun, while also helping the global economy continue to grow.