Midwest energy analysts say Michigan could leverage a $105 million public investment into roughly $3 billion in private clean energy development under what’s known as a “green bank.”
In a report issued on March 16, the Union of Concerned Scientists said the financing structure available under a green bank — which has been successfully implemented in five other states — could drive investments particularly in solar and energy efficiency.
“We think Michigan has a lot of potential for renewable energy,” said Sam Gomberg, Midwest energy analyst for UCS. “And Michigan does have a long history of using public funds to attract private investment.”
Moreover, the financing structure could drive clean energy development amid what Gomberg called a “difficult political environment.”
Republican lawmakers in particular, who control both chambers of the Legislature, have been opposed to expanding Michigan’s 10 percent renewable energy standard that leveled off at the end of 2015.
“We started to look outside the box,” Gomberg said. “This is not a substitute for these standards, but it’s one way to continue moving the ball forward while the Legislature continues to debate.”
Ultimately, a Michigan green bank could support the deployment of 685 megawatts of new solar power by 2030, according to the report. It could also save ratepayers $322 million on their annual electric bills through energy efficiency and reduce carbon emissions 3.9 million tons per year, or 13 percent of the emissions reductions Michigan would need to generate to comply with the federal Clean Power Plan.
Green banks come in different forms and offer a variety of financial products, such as credit enhancements, warehousing and securitization services and direct lending.
The UCS report envisions a 15-year revolving loan fund that would take repayments and put them back in the program. Through compound growth, the program would grow to spur $3.3 billion in investments for efficiency and renewable energy, Gomberg said. The report assumes loan terms of seven years for energy efficiency and 10 years for renewable energy at a 5-percent interest rate.
The one-time, upfront investment of $105 million would be given out in various stages through loans. Gomberg said it could be allocated in the state budget or by issuing bonds through the Michigan Economic Development Corp.
“We don’t necessarily have to start from scratch here. There is a history of programs in the state that are publicly funded and attract private investment,” Gomberg said.
For example, the state’s competitive Skilled Trades Training Fund program allocated $10 million in fiscal year 2015 for companies looking to expand worker training in skilled trades. That state investment helped leverage $112 million from employers in training skilled trades workers.
The UCS report also cited a revolving loan fund operated by the Michigan Agency for Energy for renewable energy projects; Property Assessed Clean Energy, or PACE, financing at the county level; and Michigan Saves, a nonprofit created by the Michigan Public Service Commission that offers efficiency loans for businesses and homeowners.
“We’re trying to put options on the table that might appeal to a Republican governor and legislators,” Gomberg said.
Additionally, a green bank program could help familiarize the financial sector with the clean energy industry.
“Not only does a green bank insert direct capital into these investments, but it also helps get the financing sector more comfortable” with this type of lending, Gomberg said.
For example, a property owner may want to take out a $100,000 loan for a construction project, but a solar installation would cost an additional $15,000. “Banks don’t know how much of a risk that extra investment for solar panels is,” he added.
Green banks are growing in popularity across the U.S. and the world. In December, the Global Green Bank Network was established during the climate negotiations in Paris. Advanced Energy Economy, a national trade group for clean energy development, named green banks among four trends to watch this year in clean energy finance.
New York and Connecticut have used a green bank to help drive clean energy development and transition away from governmental incentives, the UCS notes. California, Rhode Island and Hawaii also have green banks, and the Coalition for Green Capital says another seven states and Washington, D.C. are exploring the idea.
In Connecticut, the leverage ratio is one to 10, meaning each public dollar spent on clean energy spurs $10 in private investment.
“By increasing green banks’ leverage ratios, policy makers aim to establish programs that eventually reduce or eliminate the need for government incentives and that create self-sustaining clean energy markets,” according to the report.
The report’s authors also note that Kentucky, Iowa and Pennsylvania each have locally based loan programs for renewable energy and efficiency. In Ohio, a ballot initiative for a $13 billion clean energy constitutional amendment would include creating a statewide green bank.
Dan Radomski, vice president for venture and industry development at Detroit-based NextEnergy, said each state takes a different approach to the concept. In some cases, states add “public benefits charges” to ratepayers’ bills, with the proceeds going into a clean energy fund.
Radomski said green banks “are pretty productive depending on how you structure them in attracting additional financing.” They can be created and structured in ways to drive next-generation technologies or to deploy renewable energy quicker as a way to drive down electricity prices, he added.
But challenges to these types of programs come with the upfront investment.
“Even a public benefit charge on a utility bill — even if they create long-term benefits for residents of the state — sometimes will look unfavorable,” Radomski said. “And who wants their electric bill to go up?”
In 2015, the Brookings Institute called on the federal government to help some of these state programs along.
The U.S. Department of Energy has “billions of underutilized dollars” to help green banks, which could be allocated with relatively simple changes to financing rules, according to Brookings Senior Fellow Mark Muro.
“Significant federal dollars exist that could, with modest administrative adjustments, expand the nation’s green bank movement, with significant benefits for clean-energy deployment, regional economies, and the climate,” Muro wrote last year.
Radomski also considers the green bank proposal a “big policy making” decision on the order of a renewable portfolio standard — and, thus, expects a potential political fight could erupt over its creation.
“If it did go to offset loans to small businesses to get solar on their roof, do you think utilities would fight it?” Radomski said. “Of course they would.”