Gov. Raimondo’s ‘Green Bank’ Idea Draws Some Concern
January 30, 2015
Gov. Gina Raimondo’s “Green Bank” idea could complement existing Rhode Island renewable energy and energy-efficiency programs, or it could lead to their demise.
The state’s new governor has acknowledged that Rhode Island and its economy face serious threats from climate change. Tourism will be hurt by eroding beaches; fisherman will suffer from declining fish stocks; farmers will struggle with less predictable growing conditions, according to her campaign website.
Despite these concerns, Raimondo sees opportunity. “Better protecting the environment is not only the right thing to do, it is an economic driver” that can create jobs, according to the website.
To harness the economic opportunities of mitigating and adapting to a changing climate, the governor plans to create the Rhode Island Green Bank and Clean Energy Finance Authority (Green Bank). ecoRI News contacted Raimondo’s office for details about the Green Bank idea she proposed while campaigning for governor but received no relevant responses.
This Green Bank would educate the public about the benefits and availability of renewable-energy and energy-efficient technology, and encourage their adoption by maintaining funds for projects in homes, businesses and municipalities, according to the website.
The bank would leverage public funds to attract private investment, and consolidate efforts to become a “one-stop shop” for renewable energy and energy-efficiency projects. Her idea promises “low-cost, 100 percent loans for energy efficiency projects.”
Raimondo’s Green Bank proposal also includes the Adaptation and Resiliency Revolving Fund, which would provide resources such as low-interest loans to municipalities so they could better adapt to climate change.
“We need to give [municipalities] the support they need to improve their stormwater drainage systems, protect their coastal properties, prevent erosion and more,” according to the website.
Legislation to create a Green Bank in Rhode Island is expected during the current General Assembly session.
The Green Bank would be a quasi-public corporation with a government-appointed public board. This means the Green Bank would be created by the state to do the state’s work, but wouldn’t be a government department and would have its own budget outside of the state’s budget. According to Raimondo, this would “allow for greater flexibility and autonomy, while reducing risk for Rhode Island taxpayers.”
A Green Bank can receive initial funding from several public sources, according to the Coalition for Green Capital, a Washington, D.C.-based organization that advocates for green banks. In Connecticut and New York, existing surcharges on utility bills and Regional Greenhouse Gas Initiative (RGGI) funds were repurposed to provide initial capital for green banks. A state can also issue bonds to private investors or receive money from private foundations.
The Coalition for Green Capital doesn’t advise new state budget appropriations, unless it appears clearly feasible in a particular state.
According to Raimondo’s website, Rhode Island’s Green Bank would be funded by consolidating existing resources, “including, but not limited to: proceeds from bonds, revenue from the Regional Greenhouse Gas Initiative allowances, existing assets in the Renewable Energy Fund and the existing surcharge on Rhode Island electricity customers’ bills.”
This proposed funding strategy has alarmed many in Rhode Island’s environmental community. At its January meeting, the Environment Council of Rhode Island (ECRI), a coalition of more than 60 environmental groups, preemptively adopted an official position, stating, “While ECRI recognizes the benefits and importance of providing sustainable funding for [environmentally beneficial infrastructure projects], ECRI is strongly opposed to re-directing existing moneys from existing, highly successful, energy programs in order to fund any possible Green Bank.”
The funds Raimondo has suggested diverting into the Green Bank already serve specific purposes that they have effectively fulfilled, according to ECRI. For example, the “existing assets in the Renewable Energy Fund” being eyed by Raimondo are a crucial part of one of Rhode Island’s most successful renewable-energy laws, the Renewable Energy Standard.
The Renewable Energy Standard (RES) is made up of three interdependent features. First, a mandate requires Rhode Island’s utility company, National Grid, to annually buy a certain percentage of its electricity from renewable-energy sources. The percentage increases over time and will reach 14.5 percent in 2019.
Second, renewable energy generators, such as the owner of a wind farm, create one renewable energy certificate (REC) for every megawatt-hour of energy generated. National Grid must buy enough RECs each year to satisfy its renewable-energy mandate. Since renewable-energy generators sell both their energy and RECs, RECs create a financial incentive for renewable generation.
Third, in years when there isn’t enough renewable energy generated for National Grid to meet its renewable-energy obligation, it does so by instead making alternative compliance payments (ACPs) to the Renewable Energy Fund (REF). The REF then funds new renewable-energy projects, to reduce or eliminate a renewable energy shortfall in future years.
According to ECRI, the Renewable Energy Standard works exactly as intended, and removing any of its three parts would cause the system to collapse. If the Renewable Energy Fund is diverted to a Green Bank, for example, the Renewable Energy Standard would no longer have a mechanism to foster new renewable-energy generation when shortfalls occur.
ECRI also specifically opposes redirecting RGGI auction proceeds — money generated from the regional cap-and-trade program Rhode Island participates in — and the existing energy-efficiency program surcharge from electricity bills to a Green Bank.
Both funding sources have historically gone toward rebates, financial incentives and technical assistance that help residents and businesses make energy-efficiency improvements, which help Rhode Island’s economy and save ratepayers money on their energy bills, according to ECRI.
Rhode Island ranks third nationally in overall energy efficiency because of its current programs, according to Abigail Anthony, director of the Acadia Center’s Rhode Island office.
“Rhode Island’s nation-leading energy-efficiency programs and their integrated financing are achieving unprecedented levels of cost-effective energy savings and reaching the vast majority of Rhode Islanders,” she said.
Anthony noted that Rhode Island’s current energy-efficiency programs already leverage private funding without a green bank. For example, Rhode Island’s natural-gas customers are eligible for a 50 percent rebate off the cost of insulating their homes, but private capital is required to fund the remainder of the project.
Anthony fears that the proposed Green Bank would transform Rhode Island from a state that offers residents and businesses a proven combination of energy-efficiency rebates, financial incentives, technical assistance and some loans to one that focuses overwhelmingly on loans and financing. She said residents and businesses are often unwilling to take on loans to pursue energy-efficiency projects, citing cases in Britain and in Cambridge, Mass., where such an approach failed.
“Loans must be part a larger toolbox,” she said. “Acadia Center recommends that rather than compromise what is working, [the Green Bank should offer] additional financing to enhance our comprehensive energy-efficiency programs and make energy efficiency even easier and more accessible for Rhode Island residents and businesses.”
According to ECRI, Raimondo’s proposed funding mechanism would risk harming, or even destroying, important and successful renewable energy and energy-efficiency programs.
Jerry Elmer, senior attorney of the Conservation Law Foundation, said, “The important thing with any green bank proposal is to find new, dedicated funds, rather than cannibalize existing revenue streams that are accomplishing their purpose.”
Despite its reservations about the possible funding mechanisms for the proposed Green Bank, ECRI currently takes no position regarding the general merits of creating one in Rhode Island.
Connecticut Green Bank
In 2011, the Nutmeg State established the Clean Energy Finance and Investment Authority (CEFIA), the nation’s first Green Bank. CEFIA leverages public funds to attract private investment, with the goal of scaling up renewable energy use in the state. It offers incentives and low-cost loans to encourage homeowners, companies, municipalities and institutions to support renewable energy and energy efficiency.
“The idea was to transition the clean energy market to one that would become self-sustaining rather than rely indefinitely on public sources of funds,” Bryan Garcia, CEFIA’s president, wrote in the agency’s 2013 annual report.
The report highlights the successes of Connecticut’s Green Bank, including more than $220 million invested in renewable energy, a $1 to $10 public-to-private investment ratio, the creation of 1,200 jobs and a reduction of more than 250,000 tons of greenhouse-gas emissions.
In Bridgeport, CEFIA helped redevelop a brownfield site into the second-largest fuel-cell power plant in the world; $5.8 million in ratepayer funds leveraged a lifecycle investment of $125 million of private investment from Dominion, one of the country’s largest energy companies. The 14.9-megawatt plant supplies 15,000 homes with low-carbon energy.
Rooftop solar installations doubled in 2013 compared to previous years, thanks in part to CEFIA’s Residential Solar Investment Program, which provides rebates and performance-based incentives that make installing solar more affordable to homeowners. In 2011, Connecticut committed to installing 30 megawatts of new solar power within 10 years. Two years later, it had already achieved more than half that amount through 2,300 different projects.
CEFIA provides banks with loan-loss reserves to increase their ability to make long-term, low-interest energy-improvement loans to eligible homeowners. Homeowners can use these loans on insulation, heating and cooling equipment, window upgrades or the installation of a renewable-energy system.
Jamie Howland, director of the Climate and Energy Analysis Center for the Acadia Center in Hartford, was more cautious than the government’s annual report when he assessed the state’s Green Bank. Only an independent, third-party evaluation will be able to measure its success, according to Howland.
Howland said the expansion in renewable energy and energy-efficiency projects in Connecticut since the implementation of the Green Bank must be compared to the expansion that would have occurred had the Green Bank never been created.
“We need to know that the loans [from the Green Bank] aren’t simply going to projects that would have happened anyway,” he said. The Green Bank should only receive recognition for projects that wouldn’t have happened without it, he added.
“It’s likely that there has been some expansion due to the Green Bank’s programs, but we do not have any idea of the scale of that impact as compared to the resources that have been invested,” Howland said.
Like in Rhode Island, the initial proposal for Connecticut’s Green Bank threatened to divert all existing funding from energy-efficiency programs and from renewable energy incentive programs to the Green Bank. The state’s environmental community, including Acadia Center, advocated against this strategy, which would have emphasized loans over incentives.
“The key to successful efficiency programs is to address all of the barriers keeping customers from implementing efficiency projects. (Loans) are only one component of a successful efficiency effort,” Howland said. “Fortunately, the existing efficiency programs were retained and later had their funding expanded.”
Connecticut’s Green Bank has proposed expanding funding for rebates for solar installations. Howland said this is a sign that state officials recognize the importance of incentives “as a key part of the full suite of comprehensive program offerings.”
Currently, the Green Bank only offers loans for energy-efficiency projects, but customer projects often end up bundling Green Bank loans with rebates from other government programs, according to Howland. About half of the efficiency loans provided by the Green Bank are only legally possible because rebates allow the projects to meet statutory payback requirements.
Abel Collins, a volunteer who represents the Sierra Club of Rhode Island on policy issues, said a wisely funded, administered and marketed Green Bank could multiply the money available for renewable-energy and energy-efficiency projects in Rhode Island. His preferred model for a green bank is Hawaii’s Green Energy Market Securitization (GEMS) program.
This program enables renewable energy and energy-efficiency programs through low-cost loans. Funding for GEMS comes from part of an existing surcharge on ratepayer utility bills and the private capital those funds leverage. Customers, mainly homeowners, renters and nonprofits, repay loans either directly or over time through energy savings on their electricity bills.
Both repayment methods result in lower electricity costs, compared to what customers paid prior to installing their energy-improvement projects. Customer repayments are used by GEMS to fund additional energy projects, making the program self-sustaining.
Eugenia Marks, senior director of policy at the Audubon Society of Rhode Island, said a Green Bank would be a useful addition to implement environmental projects with a public benefit. Rather than repurpose existing money, such as the Renewable Energy Fund, to capitalize the bank, she advocates for a new fee, spread across the entire residential base.
Marks said a Green Bank in Rhode Island could offer loans and grants to support the state’s ongoing effort to phaseout cesspools, better manage stormwater runoff, protect drinking-water supplies, and support small municipal environmental projects such as sidewalk continuity and repair and other projects that encourage non-fossil-fuel-based transportation.
“A Green Bank should have a loan review commission whose members have professional expertise in finance, environmental engineering, environmental law, municipal liaison, comprehensive environmental issues, and community development,” she said.
Marks also said applicants for Green Bank loans or grants should need to be able to prove their ability to deliver on their proposal and demonstrate its public benefit. The bank also should focus on specific environmental challenges determined by directors of the Department of Environmental Management, Commerce, Coastal Resource Management Council, Office of Energy Resources, Department of Transportation and the Rhode Island Public Transit Authority.
Charity Pennock, the Rhode Island representative for the New England Clean Energy Council, said NECEC supports Rhode Island exploring the creation of a Green Bank as a way to help reduce the cost of energy-efficiency and renewable-energy projects for consumers. She said the Ocean State should reference the experiences of Connecticut and New York when crafting its own Green Bank proposal.
“There is nothing wrong with the idea of a Green Bank, but how you do it matters,” Elmer said. The CLF attorney said ECRI would likely support a Green Bank proposal if it were funded by new, sustainable streams of revenue.
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