Until the New York Green Bank came along, lenders at M&T Bank wouldn't have given much thought to financing a photovoltaic power plant also known as a solar farm on a contaminated industrial site in Buffalo. But with the Green Bank offering credit enhancement in the form of a guarantee, M&T felt comfortable enough to help with the construction project. That's exactly the outcome New York Gov. Andrew Cuomo had hoped for when he established the state-funded Green Bank through an executive order. The bank's goal is to accelerate the state's green economy by helping lenders finance alternative energy projects that they aren't yet ready or willing to finance on their own.
The bank, headed by longtime Citigroup executive Alfred Griffin, opened for business in February and announced its first round of transactions in October. They include supporting the loan for that four-megawatt solar farm; providing construction funding to a firm that builds and operates cogeneration facilities in large commercial buildings like hospitals and hotels; and establishing a $100 million warehouse facility that will be used to put more solar panels on residential rooftops. Its partners in the various projects include M&T, First Niagara Bank, Citigroup, Bank of America and Deutsche Bank.
Though New York and Connecticut are the only states that have publicly funded green banks, more are expected soon. The Coalition for Green Capital, an industry group that supports creation of green banks, points out that six states recently voted in governors who back green banks. Those looking to diversify into new types of lending should take note.
Bankers say that deals involving renewable energy projects often require public support to get done. Among the issues that can keep banks from making these loans on their own is a lack of operational history on the type of equipment involved.
"We have various tools we can use to finance projects debt, equity, securitizations but often there's a piece of the puzzle that [a bank] can't do because we don't have years and years of data," says Marshal Salant, global head of alternative energy finance at Citi. "There are things that are difficult for us to do as a regulated bank that a green bank can do."
The Green Bank's Griffin says many community and regional banks aren't comfortable financing alternative energy projects because they don't have the expertise to thoroughly evaluate them. Larger banks might have that expertise, but sometimes view projects as too small to be worthwhile.
No matter a bank's reason for trepidation, the Green Bank can help. It is staffed by many ex-bankers with experience in alternative energy financing who can vet projects properly. "They provided us not only with financial support, but also with technical support," says Jeff Wellington, an M&T regional president. "M&T is not necessarily an expert in this type of financing, so that level of expertise was critical."
Part of the Green Bank's mission is to help lenders become experts. "Some of these projects are right in their backyards so they have an interest in supporting those things and developing that experience," Griffin says.
But in some cases, projects of interest to the Green Bank, like financing installation of solar panels on homes, aren't very appealing to large banks. So the Green Bank is helping to facilitate the warehousing of these small loans, which the banks then could buy and package for sale to investors.
New York expects the $800 million invested in the first round of Green Bank projects to result in an annual reduction of 575,000 tons of carbon dioxide the equivalent of taking 120,000 cars off the road per year.
The Green Bank's success in finding bank partners for its energy projects bodes well for the six states California, Colorado, Hawaii, Minnesota, Rhode Island and Vermont that elected green-bank-friendly governors, says Reed Hundt, CEO of the Coalition for Green Capital. Hundt, a former head of the Federal Communications Commission, sees the need to support clean energy as an imperative. "If in 10 years the country has not moved to a clean energy platform, then we'll be spending money on building dikes and walls around Miami and New York City," he says.