States turning to green banks to finance renewables
As financial support from the government wanes, many states are turning to the private sector to nurture their renewable energy markets, which also is proving to be a boon to business.
The United States renewable energy sector has long-benefited from public policies at federal, state and local levels, which have provided everything from direct investment in solar and wind projects to tax credits that help homeowners and businesses to “go solar.”
Thanks in large part to this support, renewable energy has grown from just 7 percent of the nation’s total energy generation in 2007 to 13 percent in 2014, according to a report released earlier this year by Bloomberg New Energy Finance.
Most of this increase is being driven by wind and solar, which has more than tripled in capacity since 2008. In some areas of the US, wind energy is now the lowest cost option for utilities, and solar energy is cheaper than retail electricity for homeowners in several states.
But government money is starting to dry up, which threatens to curtail this upward trend towards a renewable energy future. The largest federal renewable energy tax credit, which offers a 30 percent tax credit for solar systems on residential and commercial properties, is set to expire by the end of 2016. Meanwhile, many local solar rebates are declining or sunsetting altogether. Another major incentive, net energy metering, also is under attack in many utility jurisdictions.
As government financial support wanes, many states are turning to the private sector to nurture their renewable energy markets, which also is proving to be a boon to business.
Private capital for public good
Clean energy financing programs offer “a promising avenue for scaling up investments in renewable energy and energy efficiency that can reap significant economic and consumer benefits,” according to a new report by the Union of Concerned Scientists.
The report highlights six state-level programs and one international program that have successfully made use of private sector funding to strengthen clean energy investment. These programs range from sweeping “green banks” to more specific efforts focused on a particular renewable energy market sector.
State green banks provide financial products to assist homes, businesses, and institutions with developing clean energy by leveraging low cost, private-sector capital. Financing costs for these programs are typically lower, UCS noted, because the state support lowers their risk.
Connecticut’s Green Bank, for example, has completed 8,800 projects and installed solar panels in more than 10,000 Connecticut homes over the past three years, creating 6,200 jobs and reducing carbon emissions by one million tons. The state’s Smart E-Loan and Commercial Property Assessed Clean Energy (C-PACE) programs have leveraged private sector capital at a ratio of 10:1, the UCS report said.
In October 2014, New York’s Green Bank announced its first round of clean energy investments, totaling $800 million, which are expected to leverage private sector capital at a ratio of 8:1 and yield returns of 1.5 to 4.1 percent.
Pennsylvania, Kentucky, Iowa and Massachusetts also have executed successful renewable energy financing schemes, the UCS report showed.
Internationally, Germany’s Kreditanstalt für Wiederaufbau (KfW) Green Bank financed $115 billion in renewables and efficiency projects in more than one million homes between 2011 and 2013, the UCS report said, creating hundreds of thousands of jobs and significantly reducing carbon emissions.
Politics threaten renewable energy growth
As it happens, renewable energy and energy efficiency are competitive resources in today’s marketplace that should be expected to grow strictly on the basis of cost alone, according to a recent study by the Advanced Energy Economy Institute. And with new breakthroughs in battery storage — such as Tesla’s Powerwall system — renewable energy could finally overcome one of the last significant barriers to going mainstream.
If this upward trend continues, renewable energy’s share of the US energy market could hit 27 percent by 2030, the International Renewable Energy Agency (IRENA) said. This would make the US the second-largest user of renewable energy in the world in 2030, second only to China.
But the US can only realize its full clean power potential if annual investments in renewable energy jump from $38 billion to $86 billion, IRENA warned, and current policies and politics don’t bode well.
However, with the political winds blowing away from progressive climate action policy on Capitol Hill and in some statehouses across the country, renewable energy finance programs may help break the political deadlock by offering a cost-effective approach to reducing carbon emissions while generating economic benefits to businesses and consumers alike.
Leveraging private-sector capital reduces the need for taxpayer or ratepayer dollars, which is something policymakers of all political stripes can get behind.