D.C.'s New Green Bank
On Tuesday, July 10, 2018 Mayor Muriel Bowser signed the Green Finance Establishment Act. The focus of the act is to “increase private investment in clean energy, clean transportation, clean water, stormwater management, energy efficiency, water efficiency, and green infrastructure projects in the District”.
This law will allow the District to establish a Green Finance Authority. The new authority will be a quasi-government entity that will serve as a “Green Bank”. Green Banks are organizations that finance the deployment of renewable energy, energy efficiency, and other clean energy and clean infrastructure projects, in partnership with private lenders.
Simply put, the green bank will be able to provide loans to help offset the upfront costs of energy efficient projects. If successful, the green bank will also bring in private investment into clean energy and energy efficiency projects. These objectives align with the District’s Climate and Energy goals to 1) increase the use of renewable energy to 50% of the supply by 2032, and 2) reduce energy use by 50% by 2032.
Some highlights of the new act include:
The Green Finance Authority will have a Board consisting of 11 members.
One member appointed by the Mayor
The Director of the Department of Energy and Environment (DOEE)
The Deputy Mayor of Planning and Economic Development
The Executive Director of the Office of Public-Private Partnerships
The Chief Financial Officer of the District
Two members appointed by the Mayor with experience at a District-based financial institution
Two members appointed by the Mayor with expertise in financing clean energy projects
Two members appointed by the Mayor with experience at a non-profit with experience in sustainable projects/programs
The Green Finance Authority will be initially funded by a transfer of at least $7 million from the Renewable Energy Development Fund (established by the Renewable Energy Portfolio Standard Act of 2004)
The Green Finance Authority may provide technical assistance, loan, grants or consultant services
Why is this important?
The impact of this act is substantial. One of the biggest deterrents to energy efficiency or renewable energy projects is the upfront costs. Even though these projects are usually cash flow positive from day one, property owners and businesses are still hesitant.
For example, say you want to place solar panels on your roof. After consulting with a solar expert, the cost of the system is $10,000. If the panels will lower your electricity bill by $2,000 annually, the simple payback is 5 years.
For most organizations, this payback is too long. For most financing companies, the interest rates to loan the funds will make the internal rate of return (IRR) undesirable. Because of these factors, the project is never completed.
But because there is now a green bank, you can get financing that eliminates the upfront costs and is less than your energy savings making the project cash positive from day 1. Private firms will be more willing to provide financing because of credit support, co-investing with the District, and warehousing (bundling several loans that can be sold on debt markets).
Green banks have been established in other states and municipalities such as Connecticut, New York, California, and Hawaii. Early returns have shown an increase in installed solar capacity with a reduction in the amount of subsidies provided by the local government.
Effects to the District
As the city moves to establish the Green Finance Authority, there are some questions that will need to be resolved. These include how will this new authority interact with already well established green energy/energy efficiency organizations such as DC PACE and the District of Columbia Sustainable Energy Utility (DCSEU). Both of these programs provide alternative financing options and subsidies to help make green energy projects possible.
DC PACE is a private-public partnership (PPP) with the DOEE that provides long-term funding for building upgrades. Will the Green Finance Authority assume all responsibilities of DC PACE? What will happen to the financing deals already put in place by DC PACE?
While DC PACE is focused primarily on commercial and non-profit organizations, DCSEU provides grants and other financial incentives for residential, commercial, and non-profit entities. How will the Green Finance Authority affect DCSEU’s role in green financing? Will this affect DCSEU’s rebate programs?
Other questions that will answered over time will include:
Will the financing only be available to commercial properties or will residents be able to leverage these financing options?
What type of energy projects will most likely be financed by the authority? Solar? LED retrofits? Energy efficiency upgrades?
How long will it take for these financing options to become available?
How much private investment will the authority be able to bring in?
What will be the increase in the number of green energy jobs in the District?
As the board members are announced, the bylaws are written, and the Green Financing Authority begins their operations, the answer to these questions will reveal themselves.
The Impact Energy team believes that this is a step in the right direction for the District. If the authority works as designed, you will see a large spike in the amount of renewable energy sources, energy efficient buildings, and an increase in the District’s energy resiliency. We are excited to see what this means for DC.