Finally, affordable clean energy project finance on a national scale
💚 Exciting news: the U.S. is about to get its first national accelerator for “green banks.”
The Inflation Reduction Act (IRA) unlocked a nearly $370 billion budget allocated to a range of programs that address the climate crisis. One of these programs in the IRA is called the Greenhouse Gas Reduction Fund, a $27 billion accelerator for financing projects that will reduce greenhouse gas emissions. Importantly, a percentage of the funds must be used to benefit disadvantaged communities. The program is administered by the EPA.
It’s great news, but before any money can be given out as low-interest loans, our elected officials and green banks will need to APPLY for it. That’s where we come in.
📈 Why do we need an energy finance accelerator?
Financing is essential to rapid deployment of clean energy. Currently, developers of clean energy may find it difficult to secure capital for several reasons. When viewed by traditional banks, projects could be perceived as too risky, involving experimental or innovative tech with unknown variables, or having unproven scalability. Additionally, non-corporate developers may not have strong enough credit to secure traditional loans. This is where green banks and other nonprofit creditors, such as community credit unions, become essential.
Green banks are financial institutions on a mission to address climate change. They are typically either publicly run or nonprofit entities that actively seek out—and provide low-interest loans for—qualifying projects that will accelerate the U.S. transition to clean energy. Green banks are especially important for providing access to capital for environmental justice communities.
💰 How might the accelerator work?
Congress has provided public capitalization ($27B) to the Greenhouse Gas Reduction Fund (or accelerator). The initial capital will allow the accelerator to finance clean energy projects and borrow additional funds from traditional banks.
This helpful graphic from the Coalition for Green Capital shows one potential model for the accelerator, in which the accelerator acts as a single, national green bank.
We now know that the accelerator will not function as a single green bank and will likely seed a handful of collaborative green bank networks, plus state and local governments.
Regardless of how the money is distributed, the process described in the graphic above is the same—just imagine the single accelerator is a collection of green banks that received, say, 20% of the accelerator’s seed capital. The green banks then offer loans to developers of clean energy projects (especially for projects in disadvantaged communities). Once developers secure a loan, they start to attract private investors who want to enable the project’s growth. In the meantime, the initial capitalization allows the green bank to start borrowing from traditional banks to build on existing funds.
As developers secure private investments and energy projects begin to generate profits, they then repay green banks. Green banks can in turn repay third-party lenders. Moreover, when private investors profit from the project, that profit is taxed, which returns money to the Treasury to make up for the initial public capital.
And it goes beyond financing—state and local governments can also use the accelerator’s funds to provide direct financial or technical assistance to qualifying projects. Think housing upgrades, clean transportation, or educational training.
👤 Who can take advantage of the funding?
While many people benefit from this program (see: energy developers, investors, ratepayers, EJ communities, and the planet!) there are a few groups who can actually apply for the funding:
state, local, and tribal governments, which can provide direct financial and technical assistance,
community credit unions and other non-green bank nonprofit lenders,
or green banks, which will likely apply as a collective.
We've already seen financial success from green banks across the U.S., including some that are operated by the state and local governments themselves. The Coalition for Green Capital has already identified green banks in 13 states that are ready to get started on pending projects immediately once they get the money from the accelerator.
Before anything happens, our elected officials and green banks need to apply for the funding!
⏭️ What can I do about it?
📍Tell your state energy agency and your state’s green bank about the available funding. (We have a playbook for this). And if you want to level up your advocacy, you can also tell your mayor about the accelerator—cities are eligible for funding, too! RMI has a great free resource that states can take advantage of.
👋 Want to take action in community? We host facilitated Zoom calls every week. Join here. Expect a warm welcome and productive 60 minutes.
🔊 Amplify: Amplifying information is essential to building a better future. Send this blog post to your own network or we have an awesome 4-minute explainer video (below) – here’s the post on Twitter, Instagram, and LinkedIn – share it!
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Ultimately, we have a short window to avoid the worst impacts of climate change. The accelerated adoption of clean energy, facilitated by low-cost financing, is one powerful solution.