Washington, D.C The Role of State Green Banks 1 Kenneth Berlin Senior Vice President (202) Reed Hundt CEO (202)

Washington, D.C The Coalition for Green Capital  Nonprofit 501(c)(3) organization  Established in 2012  Based in Washington D.C.  Full time staff in DC, NY, CA 2 CGC’s mission is to create demand for clean energy and energy efficiency and reduce carbon emissions by establishing green banks at the state, federal, and international levels. Consulting Modeling Advocacy Policy Networking

Washington, D.C Low-cost financing for clean energy projects 100% financing for residential and small business energy efficiency programs Greater liquidity for clean energy instruments Solutions that address market failures The Coalition for Green Capital develops Green Banks that provide:

Washington, D.C Coalition for Green Capital works at the national level American Clean Energy and Security Act: Green Bank (H.R. 2454) - $7.5 billion Senate Energy Committee Bill $10 billion Developing new draft federal green bank legislation –Federal Green Bank would be funded either by bonds or borrowing from Treasury –75% of funds would be lent to state green banks 4

Washington, D.C And the Coalition is leading the green bank movement at the state level January 2011 – CT Passes CEFIA legislation. Early 2013 – Hawaii establishes green bank-type entity with $100-$200 million in bonding authority. February 2013 – Senator De Leon of California introduces SB798–Green Infrastructure Bank. September 2013 – Governor Cuomo of NY files for utility commission approval of green bank with goal of $1 billion in capital. CGC is currently working in 4-7 additional states. 5

Washington, D.C The Green Bank Approach Repurpose existing state funds into a new entity or within an existing finance authority so they are: –Matched with private funds from investors with patient long-term capital who are seeking a conservative rate of return Use bonding authority to raise additional funds Lower the cost of clean energy solutions and address market failures Push programs away from rebates, grants, loan write- downs and subsidies and into revolving loan programs –In revolving funds same dollar can be used multiple times Finance both EE and RE deployment with no tech risks Develop different structures for higher risk projects 6

Washington, D.C The Coalition for Green Capital wants to establish Green Banks, design products, lead interstate collaboration 7 To pass green banks, building coalitions in states and analyzing each state’s legal and energy landscape Developing innovative products to stimulate demand for green bank financing –Products for solar PV market such as Connecticut Solar Lease Program 2 –Design green bank product to finance EV charging stations –Build 100% financing products for EE, paid back through savings Planning Green Bank Academy to facilitate collaboration between Green Banks –Two-day workshop in D.C. for state energy leaders to learn green bank building tools –Will identify ways in which green banks can develop products together and standardize practices

Washington, D.C Green Banks can pull several levers to make clean energy cheaper 1)Cheap and Available Financing 2)Securitization 3)Scale 4)Technology Advances 5)Subsidies & Tax Policy 8

Washington, D.C Green banks can reduce financing costs across clean energy markets with many financial tools 9 Green Bank Products Direct Debt Wholesale Debt Subordinated Debt Loan Loss Reserves Credit Enhancements Warehousing Markets DG Solar Residential EE Commercial EE Low-Income Utility-Scale Generation Apply Any Product to Any Market

Washington, D.C Because Green Banks are nonprofit, financing costs for clean energy are lower Investor GroupRequired Return Commercial Debt6% Tax Equity12% Developer Equity15% Green Bank Debt2% Expected Returns of Typical Clean Energy Investors Rather than maximizing return, Green Banks offer cheap capital in order to lower consumer payments for clean energy

Washington, D.C The Brattle Group “Rooftop Solar PV Green Bank Financing Model” 11 Specifications including: Installed costs Regional capacity factors 1 State policies and incentives 1 Capital structure including Green Bank Debt 1. Initially shown for Connecticut Key metrics: Retail cost 2 Equity returns Installed capacity per dollar of Green Bank Debt 2. In the form of a 2013 levelized cost of electricity, net of state incentives and RECs. Focused on incremental benefits of Green Bank funding at project level Based on illustrative specifications provided by CT Clean Energy Finance and Investment Authority (CEFIA) and the Coalition for Green Capital (CGC) Model derives key metrics for behind-the-meter solar:

Washington, D.C Illustrative Base Case 12 Under above assumptions, reliance on: Tax equity State incentives RECs Would hold retail costs at $0.210/kWh (without Green Bank Debt)

Washington, D.C Green Banks can make residential solar cost competitive in Connecticut with a 20% investment 13 Retail Price in CT Green Bank Makes Clean Energy Cost Competitive In Connecticut, for example, Green Bank debt brings price of solar electricity below retail Highlights significant impact financing cost has on clean energy price Assumes only 20% Green Bank debt investment Inclusive of current Connecticut subsidies 1) Capital structure is 20% Green Bank Debt, 20% Commercial Debt, 48% Tax Equity and 12% Developer Equity. Assuming Green Bank debt offered at 2% for 15 years, Commercial debt is at 6% for 6 years, developer equity return is 15%, tax equity return is 12%, 15-Yr REC price is 3 cents/kwh and 6-Yr State Incentives are 22.5 cents/kwh. Source) Rooftop Solar PV “Green Bank” Financing Model, Sponsored by The Connecticut Clean Energy Finance and Investment Authority and the Coalition for Green Capital, Developed by the Brattle Group. Available for download from:

Washington, D.C Potential Impact of Green Bank Debt 14 Green Bank Scenarios 1 defined per capital structure scenarios shown below: 1 Green Bank scenarios for illustration purposes.

Washington, D.C If Green Banks provide enough investment and solar install costs come down, prices will drop dramatically 15 0%10%20%30% $ $ $ $ Price of Electricity from Solar (cents/kWh) in CT as a Function of Green Bank Debt and Installed Cost Pink-highlighted prices are below current retail electricity price in Connecticut % of GB Capital in Structure Solar Install Cost ($/Watt) If solar installed costs drop to $3.5/watt and 30% of investment comes from Green Bank, the consumer needs to pay only 8.5 cents/kWh to pay back investors with adequate profit. Source: Rooftop Solar PV “Green Bank” Financing Model, Sponsored by The Connecticut Clean Energy Finance and Investment Authority and the Coalition for Green Capital, Developed by the Brattle Group. Available for download from: Other Assumptions Developer Equity Return: 15% Tax Equity Return: 12% Total Leverage: 40% Commercial Debt Interest: 6% for 6 years Green Bank Interest: 2% for 15 years 15-year RECs: $0.03/ kWh 6-year State Incentives: $0.225/ kWh Capital Structure is 20% Green Bank Debt, 20% Commercial Debt, 48% Tax Equity, and 12% Developer Equity.

Washington, D.C Green Bank investment + Private investment leads to more clean energy projects 16 Typical Capital Structure Economical Projects High Capital Costs Push Consumer Payments Above Retail Electricity Price Green Bank Capital Structure Lower Capital Costs Reduce Consumer Payments To or Below Retail Rates Technically Feasible Projects Green Bank investment attracts private investors and increases size of clean energy market.

Washington, D.C As Green Banks get paid back, they re-use money and leverage private capital to expand clean energy investing 17 Year 0: Initial investment attracts private capital Original Investment First Recycling Second Recycling Year 6: Funds are recycled into a new investment, attracting more private capital Year 6: Investment is fully repaid Public funds are lent Public funds are repaid Year 12: Investment is fully repaid Year 18: Investment is fully repaid Year 12: Funds are recycled into a new investment, attracting more private capital Illustrative Example of Green Bank Recycling and Leverage Source) Based on CGC research in New York for the New York Green Bank in conjunction with Booz & Co. Same Green Bank dollars invested multiple times, re- leveraging private dollars Recycling multiplies total clean energy investment Illustration is conservative, as loan repayments occur constantly and cash can be redeployed throughout period

Washington, D.C Green Bank Models We have found that there are three leading models for state green banks: Connecticut Model State Clean Energy Financing Authority Model Infrastructure Bank Model

Washington, D.C The Connecticut Model Established Clean Energy Finance and Investment Authority (CEFIA): a quasi-public corporation that consolidated several existing funding sources Given the power to issue bonds Authorized to raise funds from private sources of capital capped at an average rate of return set by the board Permitted to finance up to 80% of the cost to develop and deploy a clean energy project and up to 100% of the cost of financing an energy efficiency project 19 1

Washington, D.C The State Clean Energy Financing Authority Model Part of the state government, not a quasi-independent governmental entity Separate entity would need to be established to raise private funds and partner with the state financing authority under a formal partnership agreement As in the Connecticut model, a state would determine whether it could consolidate other funds into the green bank authority 20 2

Washington, D.C The Infrastructure Bank Model Clean energy projects and general infrastructure projects to be financed by a combined state energy and infrastructure authority or bank Because of differences between infrastructure and clean energy finance, we recommend that the bank create separate “windows” for each 21 3

Washington, D.C The Role of State Green Banks 22 Kenneth Berlin Senior Vice President (202) Reed Hundt CEO (202)