Emerging Finance Models for Resilient Infrastructure

Author: Lewis Milford, Clean Energy Group | Projects: Clean Energy FinanceResilient Power Project

NYC Green Bonds ProgramWith recent announcements from New York and New Jersey, we now have two emerging finance models to fund community level, climate resilient infrastructure. That’s good news, as we must raise billions of dollars in needed investments to shore up threatened public infrastructure and install cleaner resilient power technologies in critical facilities around the country.

The models came from two levels of government – one state and one municipal. Both are leaders in resilient power planning and climate adaption: New York City and the State of New Jersey; and both were hammered by Superstorm Sandy.

Last week, New York City Comptroller Scott Stringer announced a truly significant advance in the area of financing for resilient infrastructure. Stringer released a multi-billion dollar “Green Bond Program for New York City” that is likely to become a model for the country.

This announcement comes a few months after the state of New Jersey launched its New Jersey Energy Resilience Bank, a way for the state to help finance local resilient power projects like clean water and wastewater treatment, affordable housing projects and other critical public and private facilities.

Both approaches have their own strengths, and both will be valuable in accelerating the resilient infrastructure investment needed at the community level around the US.

In the green bonds plan for NYC, Stringer proposes to use bonds issued by the city to finance post-Sandy reconstruction efforts and other infrastructure investment. This would likely include water and power infrastructure projects in places like public housing and wastewater facilities.

The plan notes that a large portion of the city’s capital infrastructure needs, perhaps up to $25 billion, could be financed through these green bonds.

This move is part of a trend to use infrastructure financing for new clean energy and power resiliency purposes. Clean Energy Group has been at the forefront of this effort through its Clean Energy and Bond Finance Initiative and Resilient Power Project.

The NYC plan (http://comptroller.nyc.gov/wp-content/uploads/documents/Green_Bond_Program_-September.pdf) does a great job of outlining the progress that cities and other public entities already have made in using green bonds to finance infrastructure. The extended quote below shows how the NYC plan captures the rapid progress in the green bond market in the US:

 

Green bonds expanded to the United States municipal bond market in July 2013 when the Commonwealth of Massachusetts sold $100 million of fixed rate new money bonds to help finance environmentally conscious public projects. Proceeds from the bonds will pay for improving water quality, increasing energy efficiency, and clearing pollution. The Commonwealth’s issue of 20-year bonds was well received, with orders from 154 individual investors and 29 institutions, including several investors participating in the transaction mainly because of the “green” aspect.[i] This is particularly notable because the Massachusetts bonds were tax-exempt and thus had a smaller natural pool of green investors from which to draw. More recently, in June 2014, the New York State Environmental Facilities Corporation identified $213 million of bonds to finance 128 drinking water and wastewater projects as Green Bonds.[ii]

In July 2014 the District of Columbia Water and Sewer Authority sold its inaugural Green Bond issue of $350 million. The taxable financing was the first independently certified Green Bond issuance in the U.S., obtaining a sustainability opinion from an independent party. The transaction generated more than $1.1 billion in orders during the sale, and demand for the bonds allowed the Authority to upsize the transaction by $50 million, while maintaining pricing levels throughout the order period.[iii]

Green Bond issuance grew in September 2014, with the State of California conducting its inaugural Green Bond sale and the Commonwealth it’s second.

According to the State of California’s preliminary prospectus, it intends to finance projects that will provide air pollution reduction, clean water and drinking water, energy efficiency and conservation in public buildings, and other environmentally beneficial projects.[iv] The Commonwealth of Massachusetts took a more focused approach in its second Green Bond issue. According to their preliminary prospectus, they will use the $350 million Green Bond sale to help pay for a marine terminal in New Bedford, Mass. to support the construction of offshore wind projects. They will also use proceeds for clean water, energy efficiency, river revitalization and open-space protection efforts[v], similar to their initial issue.

Across the globe, the market for Green Bonds is booming. As CNBC recently reported, so far in 2014 more than $19.9 billion in Green Bonds have been issued worldwide, compared with $10.9 billion for all of 2013. By year-end 2014, that number is slated to be $40 billion, according to the Climate Bonds Initiative. As of July 1, 2014, the U.S. Green Bond market has hit $3.24 billion, and even bigger deals are anticipated.[vi]

In response to this emerging opportunity, institutions have set aside money dedicated to Green Bond investments. Large U.S. asset managers like TIAA-CREF, BlackRock, and Deutsche Asset and Wealth Management have recently begun to seek out green investment opportunities. In addition, other U.S. domestic investors focused on promoting socially responsible investments have started to purchase Green Bonds. Funds manager report that individual investors are also interested in this market segment for direct purchases. We believe that if more product is available in the tax-exempt market, the awareness and appetite will grow.[vii]

 

This NYC action is a critical step to advance clean energy and climate finance. It brings together two worlds, bond finance and power resiliency, and shows how one can finance the other, which is needed as we move forward with climate mitigation efforts and resilient power strategies.

It also confirms two complementary models for climate resiliency finance that are emerging.

With this green municipal bonds effort, we have a model for cities to follow to fund resiliency projects with bond finance.

And we now have a new model at the state level, with the creation of the New Jersey Energy Resilience Bank, a new $200 million effort to finance resilient power projects at public and private facilities.

With these two models in place – and the expectation for more finance innovation to come – it will be possible to generate billions of dollars to fund climate adaptation and resiliency projects.

The future challenge, which CEG is taking up with its Resilient Power Project, is to accelerate the adoption and use of these models in many other states and cities around the country.

 

ENDNOTES

[i] Massachusetts Goes ‘Green’: http://online.wsj.com/news/articles/SB10001424127887324563004578525762271478512

[ii] New York Selling $213 Million in “Green Bonds” for 128 Drinking Water, Wastewater Projects.

[iii] Barclay’s Capital Case Study “DC Water and Sewer Authority’s Ground Breaking Inaugural Century Bond Issuance: Emailed July 14, 2014.

[iv] State of California, September 11, 2014, $2029 billion Preliminary Prospectus: http://munibase.elabra.com/SeptGO14POS/docs/pos.pdf

[v] The Commonwealth of Massachusetts, September 9, 2014, $350 million Preliminary Prospectus: http://www.massbondholder.com/sites/default/files/files/MA%20GO%202014%20Series%20E%20POS%20%28Green%29%20unsecured.pdf

[vi] Constance Gustke, A scarce global resource fighting climate change, CNBC: http://www.cnbc.com/id/101796340

[vii] Office of the Comptroller, City of New York. “A Green Bond Program for New York City.” September 24, 2014.

Resilient Power Builds Stronger Communities with Clean Energy Technologies

Author: Clean Energy Group | Project: Resilient Power Project

Sandy Blackout at Union Square and BroadwayClean Energy Group has released a new paper about the progress of “resilient power” efforts since the New York City blackouts in 1999 to Superstorm Sandy. The paper goes on to announce the launch of the Resilient Power Project and describes the importance of new technologies like solar PV with energy storage to provide resilient power as weather patterns become increasingly volatile and longer power outages become more frequent.

The paper, Resilient Power: Evolution of a New Clean Energy Strategy to Meet Severe Weather Threats, outlines the dangers that power outages can pose to our most vulnerable populations, the failures of traditional backup power sources, and the opportunities to develop distributed energy systems with clean and dependable energy technologies.

Resilient power is a necessity in a world frequently impacted by severe weather. For those whose lives depend on access to electricity—for life support systems, elevator access and adequate heating and cooling during extreme weather—clean energy technologies could well be the safest, most dependable power source. More resilient power is especially important to protect vulnerable populations like the elderly, the disabled and the poor.

Clean Energy Group has a working history as a proponent of cleaner energy technologies as alternatives to diesel generators in critical facilities. It first proposed fuel cell technologies in hospitals over ten years ago, and now is looking to emerging solar + energy storage technologies to reduce impacts from outages at critical facilities such as fire and police stations, emergency shelters, and in affordable housing.

In the wake of the Superstorm Sandy, state and local officials, for the first time, have begun to make public investments in cleaner distributed energy technologies. Clean Energy Group is working with states and municipalities through the Resilient Power Project to increase public investment in these systems with efficient policies, new finance tools, and technical assistance.

The paper includes summaries of recent developments, including the New Jersey Energy Resilience Bank, Americans with Disabilities Act rulings on equal access to emergency shelters following Hurricane Sandy, Green Mountain Power’s microgrid project in Central Vermont, as well as overviews of resilient power technologies and finance tools.

Clean Energy Group will be hosting a free webinar to provide more details about its Resilient Power Project on Wednesday, October 8 from 1-2pm EDT. For more information, click here.

CESA Releases Residential Solar Group-Purchasing Guide for State Policy Makers

Author: Clean Energy Group | Projects: Clean Energy Finance, Clean Energy States Alliance

Solarize-Essex-ReevesThe New England Solar Cost-Reduction Partnership, a coalition of five New England States managed by the Clean Energy States Alliance (CESA), has produced a new guide for community group purchasing, Planning and Implementing a Solarize Initiative: A Guide for State Program Managers.

This guide features detailed cases studies of two particularly well-developed and successful programs from New England: Solarize Connecticut and Solarize Mass. Solarize is a group purchasing program for solar PV systems that lowers acquisition costs for rooftop solar installations. As more homeowners join the group purchasing program, the cost goes down, because of a tiered-pricing plan with reduced prices for more participation. The guide will be helpful to program managers and other stakeholders in states across the country seeking to develop their own Solarize programs.

Solarize programs in both Connecticut and Massachusetts have been tremendously successful in increasing the rate of residential solar adoption in three ways:

  • First, Solarize expands the potential customer base. In Connecticut, 20% of households who signed a contract for a new solar PV system through the Solarize CT program had never previously considered installing solar.
  • Second, the program speeds up solar deployment. In Massachusetts, the number of small-scale solar projects more than doubled in the vast majority of participating Solarize communities as a result of the program. In Connecticut, during Phase I of their Solarize program, selected Solarize municipalities achieved 24-65 times the rate of new solar installation contracts as compared to the rate during the prior seven years.
  • Finally, Solarize programs help drive down the installation prices for consumers. In Connecticut, Solarize has resulted in cost reductions of between 20-30 percent for customers. Solarize Mass has achieved an average price reduction of 18-20 percent for installed projects.

The guide is available online at http://www.cesa.org/resource-library/resource/planning-and-implementing-a-solarize-initiative-a-guide-for-state-program-managers.

The New England Solar Cost-Reduction Partnership, established with funding from the U.S. Department of Energy (DOE) SunShot Initiative Rooftop Solar Challenge II program, is working to build a robust regional solar market by targeting non-hardware “soft” cost barriers to solar deployment such as arduous permitting and interconnection processes, lack of finance tools, and unfavorable zoning rules for solar in some jurisdictions. For more information on the Partnership, please visit www.cesa.org/projects/new-england-solar-cost-reduction-partnership/. To learn more about the U.S. Department of Energy SunShot Initiative Rooftop Solar Challenge II, visit www.eere.energy.gov/solarchallenge.