Can 'green banks' bring clean energy to the masses? The U.S. is betting $27B on it

You've heard of the gold rush? Get ready for the green rush. With close to $370 billion US ($475 billion Cdn) on the table, the race will soon be on south of the border to secure some of the clean-energy cash expected to flow out of the Inflation Reduction Act which Democrats hope to pass this coming week. 

"Green banks" are one way that the Biden administration intends to distribute the billions of dollars that are meant to accelerate the adoption of solar, wind, geothermal and other forms of renewable energy.

They are quasi-public entities that aim to attract private investment to small-scale green energy projects, such as residential solar installations, energy-efficient building retrofits and various forms of electrification. 

They have existed at the state and local levels in the U.S., Australia and elsewhere for more than a decade. Canada plans to spend $15 billion over three years on its own iteration, known as the Growth Fund. The Canada Infrastructure Bank is a similar public-private initiative but has a much broader mandate and has been criticized for failing to attract sufficient investment and incentivizing the privatization of public services.

The proposed U.S. legislation is expected to allocate $7 billion US to state green banks and $20 billion to a national green bank, with $8 billion of that earmarked for low- to medium-income communities.

"One of their strengths is that they're mission-driven to care about deploying clean energy," said William Barber III of the Coalition for Green Capital, a non-profit group that advocates on behalf of green banks.

They try to "de-risk" investments and reduce the initial cost of financing projects in order to bring more of them online faster with an eye to helping governments meet their emissions-reduction targets. 

"We take a little bit more of a risk position in order for the lender to feel a little bit more comfortable," said Tom Deyo, CEO of Montgomery County Green Bank in Rockville, Md., one of about 22 green banks in the U.S. 

One reason green banks can do that, says Deyo, is that they know how to value the future energy savings a project will generate and factor that into the financing.

"Maybe they [conventional banks] can't quite understand how energy savings are going to play out," he said. "We're willing to take that risk position because we know that that's what will materialize."

Green banks use so-called credit enhancements such as loan guarantees, loan-loss reserves or lower interest rates to help companies and residents access the loans they need to get projects up and running.

"They're able to be more flexible in what they count towards credit worthiness or towards underwriting, and they can come up with products that serve communities in unconventional ways," said Sandra Purohi, director of federal advocacy for E2, or Environmental Entrepreneurs, which represents green businesses and investors. 

When they do put capital into a project, they expect to be repaid. They are non-profit, but they're not a granting agency and are not meant to replace other incentives such as tax credits or rebates. 

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