Guiding principles: Accessibility and Affordability, Community Engagement, Compatibility and Integration
Barriers addressed: Cost
Green banks are fully or partially funded state financial institutions that support affordable financing for clean energy or environmentally beneficial projects. While the structure of green banks differs from one state to another, there is generally a focus on partnering with private institutions on project finance and long-term market development. Leading examples of the green bank concept exist in Connecticut, New York, and Hawaii.
Green banks hold significant potential to expand access to affordable financing for low-income communities and the projects that serve them by providing credit enhancement mechanisms, such as loan guarantees or loan-loss reserves. These credit enhancement mechanisms reduce the risk associated with financing a project that serves customers with lower credit scores or debt-to-income ratios by having the green bank either guarantee the loan itself or provide a fund that financiers can apply to for repayment of defaulted loans.
Green banks can also support low-income solar participation by providing low-interest loans to project developers. This low-cost financing makes the project more financially appealing by reducing total cost of development. The developer may then be able to afford to complete their financing with the more costly financing associated with higher credit risk customers, or take on more risk themselves. The Connecticut Green Bank has successfully used this mechanism to reduce the minimum credit score for some solar financing to 640. This is a significant improvement over the 670 or higher minimums most solar financing or power purchase agreement arrangements require, but remains too high for many low-income households.
The Hawaii Green Infrastructure Authority, Hawaii’s green bank, partnered with the State Energy Office to establish a Green Energy Market Securitization (GEMS) program aimed at expanding access to affordable financing for clean energy to low-income populations. The program uses capital raised through issuance of highly rated bonds, guaranteed by the green infrastructure fees assessed to all electric customers, to make loans to customers for solar projects. While there is a relatively low minimum credit score of 600 for these loans, customers with lower credit scores pay higher interest rates. This program is successfully expanding access to financing for more customers, but for many low-income customers it will be a costly form of financing, currently at 9.875 percent for customers with 600-619 credit scores.