The residual tightness in the credit markets has made it difficult for developers to secure adequate capital to invest in clean-energy projects. And some investments carry slightly more fiduciary risk than traditional capital markets are willing to bear, particularly in these conservative economic times. These factors make a strong case for government support for financing investments in clean energy, either through direct loans, or through various types of credit enhancements to reduce some of the risk for private investors.
A publicly funded but independent financial institution focused solely on clean-energy financing—a “Green Bank”—would accomplish this policy objective by providing upfront capital or credit enhancements for emerging clean-energy projects. Working in partnership with the private sector, a well constructed “Green Bank” would open the credit markets and motivate businesses to invest again.
The Green Bank could also support an innovative financing mechanism for energy efficiency retrofits and small-scale renewable energy systems known as PACE (Property Assessed Clean Energy) bonds. Loan guarantees provided by a Green Bank would help draw private investment into PACE bonds, which can be issued by municipal financing districts or finance companies, with the proceeds then lent to commercial and residential property owners to finance energy retrofits, and who then repay their loans over time via an annual assessment on their property tax bill. ACES includes several provisions intended to help finance clean energy deployment. These include:
- The Clean Energy Deployment Administration, a Green Bank overseen by the Department of Energy.
- Specific language on federal loan guarantees and other credit enhancements to help draw private capital into the market for energy efficiency retrofits.
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