What is a Green Bank?

by | Jun 17, 2021 | Blog

As local governments across the country, including here in Central Ohio, continue to commit to carbon emissions reductions, the demand to develop projects designed to meet these reduction targets is accelerating. Renewable energy systems, energy efficiency projects, and electric transportation infrastructure all have an important role to play in helping communities meet their climate targets. Many communities are looking to resources like a Green Bank as a tool to ensure more green projects get built, increase the pool of community members who can benefit from these projects, and serve as an important public hub of information about the deployment of these projects.

What is a Green Bank?

Much like the banks we might use to get a loan or open a checking account, a Green Bank is a financial institution. However, a Green Bank leverages public, private, and philanthropic dollars to provide financing specifically for green projects in a community. Since 2011, Green Banks nationally have deployed $1.9 billion in capital. While we don’t have a Green Bank in Central Ohio (quite yet), communities across Ohio are studying this model. In 2020, Cuyahoga County studied the impact of a $13 million investment into a County Green Bank.

A Green Bank investment in a project is typically used as one part of the overall financing for a project. Over the past decade, this $1.9 billion in capital nationally has been leveraged for $7 billion in overall investment into green projects that help reduce carbon emissions. Typically, this investment into a project helps fill one or more market gaps that have previously hindered the ability for these green projects to be developed.

What are the specific ways a Green Bank can invest into a community?

Like any bank, each Green Bank has its own priorities and decision making process for how to deploy its money. A Green Bank can make direct investments into projects, provide financing tools to allow private lenders to lend to green projects, and increase the public awareness around sustainable projects. Here are a few examples of market gaps that a Green Bank can help fill:

  • Project Loans: A Green Bank can loan money to a project at a below market interest rate to help the project get built. For example, if a local non-profit would like to build a solar system on its roof, a high interest rate it may receive from the bank may prohibit the project from being constructed. A Green Bank can provide a small loan to the project at a lower interest rate that will help make the project viable.
  • Credit Enhancements: Oftentimes, low to moderate income (LMI) residents who wish to access energy efficiency projects or solar on their home, may not have the upfront cash available to pay for the investment, nor the credit accessible to take out a loan. As a result, the homeowner is not able to realize the long-term savings benefits of this potential project. A Green Bank can provide credit enhancements to allow the resident to access the necessary financing to complete this type of project for the homeowner. Typically, a Green Bank provides a credit enhancement in the form of a loan loss reserve or a loan guarantee, which allows private lenders to provide loans to the community at lower interest rates. By opening up new opportunities for lending and project investment, Green Banks can facilitate growth in local green jobs, and fund workforce development programs to support job training.
  • Increasing Demand for Green Projects: Sometimes, community members may not even be aware of their ability to finance green projects on their home or business. For example, community members may perceive that the cost of installing rooftop solar might be too high. A highly visible marketing campaign by a Green Bank can help educate residents and business owners about the potential upside of making these investments.

At CRE, we believe our communities need every tool available to achieve the ambitious clean energy goals necessary to heal our planet while stimulating our economy equitably. We’re excited by the important role Green Banks have to play in the transition to a green, renewable energy based economy.  We are working with our partners on developing tools like Green Banks in the communities we serve to help continue to build better access to clean energy for organizations and communities facing common barriers to the renewable resource.

If you are interested in learning more about Green Bank’s here are some fantastic resources to dive even deeper!

 

 

 

 

 

 

Praxia Partners