October 30, 2014

How to Finance Resilient Power: Emerging Models Post-Sandy

By Lewis Milford

CEG-Financing-for-Resilient-Power-featuredIt’s been two years since Superstorm Sandy hit the East Coast. It knocked out electric grids and left millions of people to suffer for weeks without power in public housing, senior centers, hospitals and shelters.

But with respect to power outages, there is some surprisingly good news that came out of the disaster.

Usually, after such disasters, a familiar pattern unfolds. People try to get on with their lives as best they can. Everyone expresses gratitude for the help they received. And governments hope another storm does not hit, but they don’t do much to prevent the same damage from occurring the next time.

Sandy was different. If there was anything positive to come out of that massive and disastrous weather event, it was that this time, governments didn’t go back to business as usual. Officials of both parties recognized that Sandy heralded a “new normal,” and began to take action accordingly.

For the first time, there was widespread agreement that conditions are changing, storms are becoming more frequent and severe, and our elected officials cannot simply sit back and do nothing. For the first time in modern memory, governments in the Northeast said enough is enough.

In the two years since Sandy struck, officials from the Northeastern states have acted on a new strategy to deal with natural disasters and the power outages they cause. These governments have begun a grand policy experiment in the emerging field we now call Resilient Power.

At the state and community level, policy is now moving away from the old fallback of diesel generators. They failed miserably in Sandy, proving that new alternatives are needed— technologies that run all the time and don’t fail when they are needed the most. New technologies like solar PV plus energy storage (solar + storage), microgrids, and fuel cells have become serious policy choices for the future.

So what have states and communities done to advance the future of resilient power? And what issues remain to be addressed, to assure that citizens are better protected the next time a storm of this magnitude hits us?

State Resilient Power Programs Emerge

In the Northeast, each state has taken a slightly different approach. Connecticut, for example, was first out of the gate with a three-year, $45 million microgrids program; that program is now in its second round of funding, with 11 projects awarded grants, and a third round has yet to go out.

Massachusetts funded six resilient power projects of various sizes in the first round of its $40 million program, and provided technical assistance grants for 27 more projects, which will be eligible for deployment grants in Round 2, currently underway.

New York is developing its own $40 million microgrids program, to launch in 2015, and New Jersey has launched both the nation’s first Energy Resilience Bank, a $200 million grant and loan-providing entity based on the model of state green banks, and a separate $3 million energy storage program, which will fund renewable generation plus batteries for critical infrastructure resilience, and is expected to continue with similar levels of funding over four years.

Maryland is putting together a microgrids program, and in Vermont, a joint state/federal grant funded a $10 million, 4 megawatt solar storage microgrid supporting a public shelter, with additional build-out supporting critical facilities expected.

This progress is not limited to the Northeast; many other states have been paying close attention, and are planning their own resilient power programs.  Notably, California has a $20.5 million microgrids/resilient power solicitation on the street, and significant energy storage programs have been launched in California, Hawaii, and Puerto Rico, and are under development in other states.  Grid revisioning is underway in a number of states as well.

Financing Resilient Power

These new public funding programs are an important advance to better protect people from severe weather events. But they will only go so far, unless we figure out how to finance these resilient projects at scale with public and private money, and make them accessible to both high and low-income communities. That’s important because low-income populations suffer disproportionately from the damage brought by severe weather like Sandy.

Clean Energy Group (CEG) has published a paper on this funding challenge, called Financing Options for Clean, Resilient Power Solutions. The paper addresses a basic problem in this space: implementing resilient power technologies requires access to capital on terms that make projects economically feasible.

In response to that problem, this paper describes a broad range of financing mechanisms that are either just beginning to be used or that have a strong potential for providing low-cost, long-term financing for solar + storage. The goal of this paper and CEG’s future work is to identify financing tools that can be used to implement projects and that will attract private capital on highly favorable terms, thereby reducing the cost of solar + storage and other resilient power technologies.

In this new paper, CEG explores how conventional financing options–such as bond financing, credit enhancement, and public and private ownership structures–can be used to support new resilient power technologies. The paper also focuses on resilient power financing for low-income communities and affordable housing projects.

In particular, the paper goes far beyond the conventional grant model, in stating:

We must move beyond state grants and loans and begin to make use of innovative financing models that are available to municipalities to fund infrastructure and critical facilities. It is at the municipal level where the rubber meets the road, in terms of disaster planning and technology deployment.

The paper notes that municipalities and states have a broad range of financing options supporting clean resilient power deployment. These fall into four categories: bond financing, clean energy financial institution initiatives, credit enhancement, and public and private ownership structures.

To give one key example, the paper notes:

With these finance options, states and municipalities can reduce the cost of financing their projects by leveraging public and private funds on favorable terms.  For example, many schools also serve as an emergency shelter during an extended power outage.  A municipality can finance a solar + storage system to power the school/shelter’s critical loads when the power grid is down by using one or more of these tools to get the job done. It can use the proceeds from a variety of bonds to finance the project. It can enter into power purchase and/or leasing agreements with third-party companies that maintain and operate the systems at no up-front cost to the school. And in many states, they can obtain direct loans or credit enhancement (loan guarantees, loan loss/debt service reserves) from their state’s clean energy fund or “green bank.”

With this finance paper and other publications, CEG plans to show how new public resources combined with innovative, new financing models–as well as with established finance tools used in new ways–can be applied to resilient power for critical facilities and infrastructure.

In the coming years, we expect states and municipalities will begin to address barriers to resilient power deployment through additional funding programs. These programs will tackle technical, policy, financial and market barriers.

Over time and with hard work, markets for resilient power will continue to develop, and resilient power will become an established and accepted part of any state or local resiliency plan, along with committed funding, technical support, and program assistance.

And then, people of all income levels will have power in the storm.

Photo Credit

Michael S. Lockett, US Department of Defense, via Flickr

Associated CEG Initiative(s)

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