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July 2, 2020
To lessen the impacts of climate change, the deployment of energy efficiency and clean energy must rapidly increase in rural as well as urban communities. The need for cost-effective energy retrofits is especially pressing in rural communities, which suffer from high energy burdens—about 40 percent higher than their urban counterparts. Rural communities, in particular, present unique challenges for clean energy investments, including sheer remoteness, high program implementation costs, lower density, and a lack of skilled labor for installations. But retrofits in rural areas also offer the opportunity to significantly improve energy reliability, install solar PV paired with battery storage devices (which aren’t always a good fit for high-density urban areas), and increase the energy-efficient household stock.
A key hurdle to the faster adoption of energy efficiency and renewable energy is a lack of access for many households and small businesses to affordable financing. For the past 10 years, EESI has worked to expand the availability of on-bill financing programs in rural areas, with a special focus on serving low- and moderate-income families (LMI). More recently, EESI has teamed up with several “green banks” interested in developing and implementing financing programs that leverage our experience with the Department of Agriculture's Rural Energy Savings Program (RESP).
Green banks are dedicated finance institutions that use innovative financing to connect clean energy and resilience with capital. Green banks are broadly structured in two categories—nonprofits, and state agencies—and differ greatly state-to-state on the services they provide. Because green banks do not take deposits like traditional banks, the same federal regulations do not apply. Instead, green banks are created by state legislation as financing authorities to help increase clean energy deployment at the state level. Green banks are especially useful in the residential market because they can help remove market barriers and close market gaps, such as access to capital for underserved markets, and help solve split incentives issues. Split incentive issues occur when landlords are reluctant to invest in clean energy upgrades for renters who pay their utility bills directly, as the latter would benefit from the resulting savings without incurring the costs. This issue often excludes renters from accessing capital for clean energy upgrades, even though they would greatly benefit from such upgrades.
Because green banks are state-chartered entities, they leverage capital in a way commercial banks cannot. Green banks expand the financing pie for clean energy by offering tools, such as Property Accessed Clean Energy (PACE), Solar Power Purchasing Agreements (Solar PPAs), loan loss reserves, and on-bill financing programs. While on-bill financing programs have historically financed energy efficiency retrofits, new innovative approaches (e.g., those that use utility bill payment history instead of credit scores to determine program eligibility, and make investments transferable to future unit occupants) are providing solutions for LMI homeowners and renters to afford and access clean energy upgrades.
The first green bank (originally called CEFIA, the Clean Energy Finance and Investment Authority) opened in Connecticut in 2012. Since then, green banks have emerged as influential financing entities for clean energy projects. The Connecticut Green Bank alone has successfully funded more than $1.5 billion in clean energy projects, predominantly through retrofitting large commercial projects. Currently, 15 green banks are operating in 13 states, including California, Colorado, New York, and Michigan. Across the United States, the green bank model has driven more than $4 billion of investment into clean energy markets.
While green banks have not necessarily been focused on rural areas, that is starting to change. As of April 2, green banks are now eligible for RESP funding. Green banks can now, for the first time, use RESP capital to provide long-term and low-cost financing, stimulate private capital, close market gaps, leverage innovative tools to reach new markets, and even help states achieve their 100 percent clean energy goals.
EESI’s Access Clean Energy Savings program provides no-cost assistance for entities looking to apply for RESP capital (and develop on-bill financing programs), including rural electric co-ops, rural utilities, green banks, and state agencies. So far, EESI has directly assisted 12 entities with RESP applications, securing about $51 million in funding for them. On-bill financing is an eligible repaying mechanism available for the ultimate end-user under RESP.
A great model of an on-bill financing program set up by a green bank is the Hawaii Green Energy Money Saver (GEM$) On-Bill program. GEM$ is an EESI-supported program developed alongside Hawaii’s green bank, the Hawaii Green Investment Authority (HGIA). GEM$ finances solar PV panels for LMI homeowners, renters, businesses, and nonprofits. Rural electric cooperatives, such as Orcas Power and Light Cooperative (OPALCO), Mountain Parks Electric, and Ouachita Electric, are using innovative on-bill financing programs with RESP capital to finance clean energy upgrades and beneficial electrification projects for homes and businesses. The potential combination of green banks using RESP to great advantage, could be a game-changer for rural areas. Together, green banks, RESP capital, and on-bill financing programs can be an integral part of a green recovery by reducing climate change impacts in vulnerable communities and decreasing their energy burdens, energy bills, and carbon emissions.
Author: Miguel Yanez
Top-Rated Climate Nonprofit – 4-Star Charity