Clean Energy Finance: Green Banking
Strategies for Local Governments
* vmatH "
United States
Environmental Protection
Green banks are financial institutions that can
leverage public funding to attract private capital for
clean energy projects (including energy efficiency,
renewable energy, and other distributed energy
resources), as well as other "green" investments.
They can assist states and communities in
partnering with private lenders and investors to
mobilize capital, alleviate perceived risks, and
design attractive financial instruments to support
these investments.
While several states have established green banks,
local governments are also exploring this innovative
clean energy financing opportunity. The New York
City Energy Efficiency Corporation (NYCEEC) and
the Montgomery County Green Bank in
Montgomery County, Maryland, were the first local
green banks in the United States, established in
2010 and 2016, respectively. Washington, DC,
passed legislation in July 2018 to create the third
local U.S. green bank.
Green banking can
help local governments
pursue their
energy, and
economic priorities.
In addition to
establishing their
own green banks,
there are multiple
ways in which
local governments
can support "green
Examples include working with state green banks or
local finance agencies to help residents and
businesses access financing, or establishing local
nonprofit entities that attract private capital for
clean energy investments by providing services
similar to those offered by green banks. As such,
local governments can pursue green banking
opportunities that align with their own needs,
abilities, resources, and operating contexts.
This paper provides a basic explanation of green
banks, the benefits they offer, issues local
governments might consider when deciding whether
to create a green bank, and several case studies. It
also provides information on other green banking
opportunities for local governments.
Although there is no single green bank model, a
green bank is generally defined as an institution that
leverages limited public dollars to attract additional
private investment in clean energy or other "green"
investments, such as green infrastructure projects.
Green banks typically use their funds to support
energy efficiency upgrades, renewable energy
projects, and other proven clean energy
technologies. The types of projects that they support
vary depending on the local context (see the
examples provided at the end of this document).1'11
To date, more than 75 percent of all green bank
investments in the United States have been for
renewable energy projects.111
Depending on state and local priorities and
financing needs, green banks typically support
projects in targeted sectors or with specific
customer profiles, such as commercial property and
business owners, residential homeowners,
nonprofits, rental property owners, institutions, and
government agencies.
Local business owners and residents are
increasingly interested in clean energy as a means to
reduce energy consumption and costs, increase
comfort, and protect the environment. While clean
energy technologies are becoming more
economically viable, the growing demand for these
technologies has not always aligned with access to
reasonably priced, appropriately targeted, and
October 2018

Green Banking Strategies for Local Governments
sustainable financing. Private investors often
perceive this market segment as risky. In addition,
external funds that are sometimes used to
supplement local budgets, such as funds from the
state or federal government or charitable
foundations, may not always be available. As a
result, local governments are interested in attracting
more capital to this market to support clean energy
investments in their communities and to help
advance their environmental, energy, and economic
Green banks can help address this financing gap
since they use their funds to reduce the risks and
administrative burdens for private investors, making
it easier for the private market to finance clean
energy projects. By
attracting more
private investment
into the market,
green banks can
help local
increase the
accessibility of
affordable financing for clean energy projects that is
independent of external sources of funding.1V This
support can help local governments achieve other
economic objectives, such as enabling the growth of
local businesses that provide clean energy products
and services. This section describes several of the
primary benefits that green banks and other green
banking opportunities offer.
Generating and Aggregating Demand for
Some clean energy projects, such as home energy
efficiency upgrades or residential rooftop solar, are
typically small and decentralized. Financing many
small and decentralized projects individually
involves higher administrative and transactional
costs than financing a few larger, utility-scale
projects. As a result, financial institutions may be
less likely to underwrite loans or provide other
financial instruments for these projects, which
would otherwise be technologically and
economically viable.
Green banks can help raise customers' awareness of
financing opportunities available for clean energy
projects, thus increasing the overall demand for
financing. Green banks can also aggregate this
demand for local clean energy project financing,
and use various techniques to reduce administrative
costs, such as warehousing and securitization
(described on page 4), making projects more
attractive to lenders.
Addressing Knowledge Gaps to Reduce
Perceived Risks
Although many clean energy technologies are well-
established, there may be instances where they are
used in new configurations or locations, often
referred to as "first of its kind" applications.
Financial institutions might view these projects as
too risky to finance, especially without a payback
history for similar projects. Green banks can help
address this challenge by sharing information about
the energy savings potential and other data
associated with similar projects, and by raising
financial institutions' awareness of clean energy
technologies and benefits generally. They can also
support demonstration projects that substantiate
claims of the viability of clean energy projects, thus
mitigating investors' perceived risks.
Mobilizing Private Capital to Meet
Green banks can be effective at mobilizing private
capital in several ways. As described above, they
help reduce administrative and transactional costs
associated with small, decentralized projects that
are otherwise viable; and they help address
knowledge gaps about the benefits of financing
these projects. In addition, green banks can provide
institutional backing that mitigates the risk of
investing in energy technologies outside of a private
investor's typical purview, such as projects that
involve large capital expenditures and long payback
periods. For example, green banks can include loan
Green banks can help
mobilize private capital
by increasing demand
for clean energy
financing and
reducing perceived
risks for investors.
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Green Banking Strategies for Local Governments
loss reserves or loan guarantees. Loan loss reserves
can be used to cover losses incurred by a financial
institution on clean energy loans up to a
predetermined amount. In this way, these reserves
can reduce financial risks, such as those associated
with potential loan payment default. In the case of
loan guarantees, the green bank assumes the
borrower's debt if the borrower defaults, again
reducing the financial risks for private investors.
Mobilizing Capital
Through 2017, U.S. green banks had mobilized
more than $2.6 billion of clean energy investments.3
This is enough capital to install a 5-kW photovoltaic
system (the most common size for residential
projects) on approximately 230,000 roofs.b
a Based on an EPA review of green bank financial data.
b Based on information available from the Solar Action Alliance:
Using Public Funds Efficiently
Green banks leverage limited public funds to attract
private investments to address financing gaps. This
approach allows public dollars to be recycled
through financing with repayment structures, and
lessens total public expenditures over time. In
contrast, grants and rebates are one-time outlays of
public funds.
Supporting the Local Economy
Because green banks generate demand for clean
energy and assist in mobilizing capital for projects
to meet that demand, they can create substantial
economic benefits at the community level. Green
banks also tend to function as "one-stop shops" for
lenders, borrowers, energy service providers, and
other parties, making collaboration easier. This can
lead to robust green economies built around green
bank-cultivated partnerships. These partnerships
can contribute to local economic benefits, such as
job creation. The Connecticut Green Bank, for
example, estimates that its activities supported the
creation of more than 5,000 direct and 8,000
indirect jobs in the first six years of its operation/
Addressing Specific Financing Needs
Green banks can also fill sector- or market-specific
gaps in local clean energy project financing and
access. For example, private financing options for
residential rooftop solar installations often involve
higher interest rates and credit measurement
requirements that make them inaccessible to lower-
income households. In such instances, a green bank
could offer low-interest loans or lease financing for
rooftop solar installations that are targeted at low-
income households, alongside energy efficiency
upgrades financed through energy savings
agreements. Other options might include allowing
customers to use their bill repayment history as
proof of creditworthiness, rather than more
traditional measures like FICO® scores.
Green banks can use an array of financing
mechanisms to support clean energy investments for
a variety of customers, including businesses,
homeowners, institutions, and others. These
mechanisms include:vl
•	Loans: Green banks can facilitate access to
market-rate or below market-rate loans. Loans
may be senior or subordinated to other capital
providers and can help attract private investors
by protecting them from a portion of the risk.
Revolving loan funds use an initial source of
capital to make direct loans to borrowers. As
loans are repaid, the proceeds are returned to the
fund and become available for additional loans.
•	Co-investment. Green banks can directly invest
in a project alongside a private investor, reducing
the investor's financial risk. Green banks can
also facilitate participation loans by recruiting
multiple lenders to contribute funds toward one
combined loan issued by the green bank. In this
way, green banks can help other lenders gain
experience with clean energy investments.
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Green Banking Strategies for Local Governments
•	Credit enhancements: Green banks often use
their funds to alleviate some of the perceived
risks of loans or investments in clean energy
technologies. Examples include offering loan
loss reserves and loan guarantees.
•	Bonds: Green banks can issue bonds, depending
on their structure, to capitalize clean energy
initiatives. These can include green bonds,
environmental impact bonds, and social impact
bonds designed to promote clean energy.
•	Warehousing and securitization: Green banks
can use these two techniques to bundle loans and
sell them to the private sector (see text box
Warehousing and Securitization
Green banks can directly underwrite loans for clean
energy projects as they are developed and
warehouse them. Warehousing refers to the
practice of storing loans until there is a sufficiently
large bundle to sell in a secondary market. Green
banks can then sell bundled loans to private
investors through various methods:
•	Private placement of the loans. Loans are sold
through a private offering, typically to a small
number of selected investors.
•	Securitization. Securitization is the process of
pooling together low-capital loans and selling
them to investors as interest-bearing securities.
If a green bank sells all of the loans it underwrites, it
would effectively replace its initial public funding
with private capital. The green bank could thus be
self-sustaining without drawing on additional public
a Coalition for Green Capital. 2015. Growing Clean Energy
Markets with Green Bank Financing. Available:
Accessed 9/20/2018.
Green banks can serve as administrators for other
clean energy financing programs, such as Property
Assessed Clean Energy (PACE) and on-bill
repayment programs. PACE refers to arrangements
where property owners secure energy upgrade loans
through benefit assessments tied to PACE loans on
their properties and repay them through their local
property taxes. Green banks can help attract private
capital to support PACE loan programs. On-bill
repayment programs allow utility customers to pay
off financing for clean energy projects over time
through their utility bills. Green banks can work
with utilities to mobilize capital for these projects,
or serve as third-party administrators for the
Local governments can design green banks to suit
their particular fiscal, economic, political, and
institutional circumstances. The processes for
establishing and administering green banks -
described below - can involve considerable
financial, technical, and human resources.
In general, the two main steps involved in
establishing a green bank are legalization and
capitalization.11 Legalization is the process by which
a green bank is established and made a legal entity.
This can involve several types of actions. For
example, a local government could (1) use
legislative action through a county or municipal
governing body to create a new green bank,
including as an independent entity separate from
government; (2) establish a green bank as a new
entity within existing institutional frameworks; or
(3) adapt existing entities or funding sources
(e.g., revolving loan funds) and repurpose them in
the form of a green bank.
The governance structure of the green bank is an
important factor to consider during the legalization
process since it will determine the local
government's level of engagement in the bank's
operations and direction. For instance, a local
government that establishes a green bank as a
nonprofit entity might specify in the charter that
members of the bank's board of directors will be
appointed by the mayor. Alternatively, the local
government might establish the green bank as an
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Green Banking Strategies for Local Governments
independent nonprofit that has the autonomy to
select its own board members.
Local governments can capitalize (provide initial
funding for) green banks using public and/or private
funds. Green banks may be capitalized with a
combination of funds to allow for large infusions of
start-up capital and sustained funding sources for
longer-term projects.
•	Public funds are the most common source of
initial capital for a new green bank.
Governments may choose to either provide one
upfront infusion of capital or set up the bank to
receive funds over time from a dedicated stream
of revenues, including regular budget funds, tax
revenues, municipal bonds, or municipal utility
Capitalizing with one large, initial infusion of
public funding may limit a green bank's ability
to offer long-
Local governments can . , ,
3	term loans due
capitalize green banks t0 the need t0
using a combindtion recapture those
of public and private funds in a
funds that come from a shorter
variety Of sources.	timeframe.
Having periodic
injections of public funds from dedicated streams
can address these challenges and enable the
green bank to take on investments that require
longer payback periods. However, a large initial
infusion of public funds can help raise investors'
perceptions of the bank's potential impact, which
could lead to increased private capital.
Regardless, it is important that green banks have
effective strategies for recapitalizing themselves
so they can continue to offer new financing in
the marketplace.
•	Private funds can supplement initial public
funding for a green bank. Private funds may
come from private investors and financial
institutions. Market investors are typically
attracted to potential market-based returns on
their investments, and the reduced risks
associated with local government-backed
financing. Philanthropic organizations and
socially minded investors may be another option.
These potential funders may offer less than
market-based returns in exchange for the benefit
of a project's social outcomes.
•	Other funds can include proceeds from carbon
trading, renewable energy certificate sales, and
legal settlements. As described in the case
studies at the end of this document, the
Montgomery County Green Bank was
capitalized with an investment of funds the
county received as a result of a utility merger.
For green banks to be effective at mobilizing private
capital, they need the capacity to:
•	Conduct outreach to customers to raise
awareness of the green bank's products and
offerings. Customer awareness is necessary to
generate sufficient demand to justify the bank's
activities (e.g., warehousing loans).
•	Develop partnerships. Green banks rely on
sustained funding from the private sector. To
ensure that funding, green banks work closely
with lenders, service providers, and other
partners to align funding and structure products
to meet local needs.
•	Communicate with lenders to help address
knowledge gaps and perceived risks. Knowledge
gaps and perceived risks present a significant
barrier to clean energy project financing. Green
banks can help address this barrier by sharing
data and information about project benefits and
payback periods, and supporting demonstration
•	Administer loans and other instruments. Green
banks are typically staffed by financing experts
with experience working with the finance
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Green Banking Strategies for Local Governments
community to design and deliver products to
In addition to establishing green banks as municipal
entities, local governments can pursue other green
banking opportunities based on their own needs,
abilities, resources, and operating contexts. This
section provides several illustrative examples.
Working with Existing Local Entities
Local governments can work with existing entities
to incorporate green banking features into their
operations. For example, local governments can
work with community development financial
institutions (CDFIs) to provide financing for clean
energy projects. CDFIs are organizations that
receive federal funding to support economic growth
in distressed communities. A number of CDFIs,
such as the Florida Solar and Energy Loan Fund,
offer financial support for clean energy projects/11
Green Bank Consortium
There is a growing demand for green banking
opportunities outside the jurisdictions where green
banks currently operate. The Coalition for Green
Capital, a nonprofit providing technical assistance
on green banks, is working with a range of partners
to launch a Green Bank Consortium. The
consortium will be a membership network made up
of green banks, lenders, developers,
nongovernmental organizations, and other key
stakeholders. It will provide best-practices, technical
assistance, and product assistance to help green
banks and related entities mobilize more capital in
local markets, while also leveraging economies of
scale to more quickly deploy financing across the
For more information on the Coalition for Green
Capital, see:
Establishing Independent Nonprofits
Local governments can establish independent
nonprofit organizations to provide financing for
clean energy projects. This process typically does
not require the legislation and authorization needed
to establish a green bank as a municipal entity.
Independent nonprofits can be capitalized with both
public and private funds. They may help mobilize
capital from lenders who may view independent
green banks as attractive for their potential
flexibility and stability relative to green banks
established as local government agencies. The New
York City Energy Efficiency Corporation
(NYCEEC) and the Montgomery County Green
Bank are examples of independent nonprofit green
banks. See the case studies at the end of this
document for more information on these examples.
Working with State Green Banks
Several states have established green banks,
including California, Connecticut, Hawaii, New
York, and Rhode Island. Local governments can
either directly access financing from state green
banks for municipal projects or facilitate financing
for local residents and businesses by raising
awareness of the state green bank's offerings. See
the case study on the Connecticut Green Bank at the
end of this document for more information on how
one state's green bank works with local
For some communities, establishing a green bank
can be an effective means of mobilizing private
capital for clean energy. Local governments can
consider the following questions to determine
whether establishing a green bank is right for their
community. Answering "No" to a question does not
necessarily preclude a local government from
establishing a green bank. However, it may indicate
that other green banking opportunities - such as
working with a state green bank - may be more
• Does the local government have a priority
market (e.g., distributed solar) for which
financing is not readily available due to
perceived risks or other barrier si Priority
markets focus a green bank's investment
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Green Banking Strategies for Local Governments
Key Resources
•	EPA's Clean Energy Finance Toolkit:
•	Green Bank Network Website:
•	National Renewable Energy Laboratory Green
Banks Website:
priorities, providing clear direction to investors.
However, green banks do not necessarily need to
focus on specific target sectors or populations.
•	Is there sufficient demand to warrant creating a
green bank? If not, local governments might
consider other small-scale financing mechanisms
to support projects, or collaborate with other
communities to aggregate demand. Local
governments can also work to generate demand
through outreach and awareness campaigns.
•	Is there enough public capital to capitalize the
bank and attract private investor si If not, local
governments might consider engaging with other
sources, such as philanthropic organizations or
state governments.
•	Are private investors reluctant to invest in clean
energy even if they have the capacity to do sol
Green banks help reduce perceived and real risks
for private investors, and thereby stimulate
private investment.
•	Does the local government have the capacity and
financial expertise to establish and administer
the green bank1 If not, local governments can
still consider contracting with a private entity to
serve as a green bank administrator.
Alternatively, local governments can help
businesses or residents access other sources of
financing, such as state-operated green banks.
For example, a bike share operator in New York
City obtained a $50 million loan from the state's
green bank to help expand its program to low-
income communities; the program is
implemented in partnership with the local
•	Does the local government have the legal
authority and political support needed to
establish a green bank1 If not, local governments
can consider partnering with their state's green
bank or other green banking opportunities.
I	Coalition for a Green Capital. 2015. Growing Clean
Energy Markets with Green Bank Financing. Available:
Paper.pdf. Accessed 9/20/2018.
II	Natural Resources Defense Council, Coalition for Green
Capital, and Climate Finance Advisors. 2016. Green &
Resilience Banks: How the Green Investment Bank Model
Can Play a Role in Scaling Up Climate Finance in
Emerging Markets. Available:
bank-model-emerging-markets-report.pdf. Accessed
III	Green Bank Network. 2017. Green Bank Network Impact
through June 2017. Available: Accessed
IV	Coalition for Green Capital. 2017. The Value of Public
Investment in Green Banks. Available:
public-investment-green-banks/. Accessed 9/20/2018.
v Connecticut Green Bank. 2017. 2016 Fiscal Year Report.
2016-CAFR.pdf. Accessed 9/20/2018.
V1 Coalition for Green Capital. 2016. Green Bank Product
and Activity Overview. Available:
Activitv-Overview.pdf. Accessed 9/20/2018.
vn Solar and Energy Loan Fund. 2014. SELF Website.
Available: Accessed
vm New York Green Bank. 2017. Governor Cuomo
Announces Major Milestone. Available:
million-profits. Accessed 9/20/2018.
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Example Green Banks
Montgomery County Green Bank (Montgomery County, Maryland)
•	Established: 2016	• Sectors: Commercial,
•	Capitalization: Merger set-aside	industrial, nonprofit, multi-
The Montgomery County Council designated its green bank in 2016 as a publicly chartered, independent 501(c)(3)
nonprofit organization. To capitalize the green bank, the County Council committed up to a $14.1 million set-aside
that became available through the merger of the local utility company (Pepco) with Exelon Corporation. The
Montgomery County Green Bank uses its capital to partner with lenders and attract their capital for loans or other
investments. With its first product, the Commercial Loan for Energy Efficiency and Renewables (CLEER), the green
bank has attracted approximately $20 million in private capital with a green bank funding investment of only $1
million for a loan loss reserve. CLEER finances energy efficiency and renewable energy projects for commercial,
industrial, nonprofit, and multi-family properties.
For more information, see:
New York City Energy Efficiency Corporation (New York, New York)
•	Established: 2010	• Sectors: Multi-family,
•	Capitalization: Federal grants from the American	commercial, retail, healthcare,
Recovery and Reinvestment Act and New York City funds industrial, hospitality, nonprofit
NYCEEC is a 501(c)(3) nonprofit corporation that was established in 2010 to help New York City meet its energy
and climate goals. NYCEEC offers financing products to help buildings invest in energy efficiency and reduce
greenhouse gas emissions. Initially established as a nonprofit corporation and an affiliate of the New York City
government, NYCEEC was restructured in 2013 to operate as a fully independent nonprofit that maintains a close
working relationship with city and state governments. This restructuring helped ensure NYCEEC's longevity and
eased its ability to attract resources from private organizations.
NYCEEC offers direct loans to building owners and project developers, typically in amounts ranging from $100,000
to several million dollars. NYCEEC also offers small-scale pre-development loans in amounts ranging from $3,000
to $40,000 for affordable housing properties. Loans can be used for purchasing and installing equipment, financing
energy service agreements and power purchase agreements, and funding pre-development activities. Rates
typically range between 6-8 percent, and terms are generally 10 years or shorter. In addition to issuing loans,
NYCEEC has provided credit enhancements in the form of loan loss reserves. NYCEEC had financed over $145
million in clean energy projects in New York City and beyond.
For more information, see:
Connecticut Green Bank
•	Established: 2011	• Sectors: Residential,
•	Capitalization: Regional Greenhouse Gas Initiative	commercial, local
funds, utility bill fees governments
The Connecticut Green Bank was the first green bank in the United States, established in July 2011 by legislative
action from the Connecticut General Assembly. The bank has raised an additional $6 of private capital for every
$1 of public funds used. It offers numerous opportunities to cities and towns, including pooling their demand for
clean energy projects and helping them market clean energy finance products to local residents and businesses.
Local governments can use the bank's financing to establish commercial PACE programs in their jurisdictions. In
addition, the bank provides financing and technical assistance to help local governments enter into power purchase
agreements at reduced rates, or to engage in no-money-down methods of hosting solar projects on certain public
The Connecticut Green Bank recently announced the formation of a 501(c)(3) nonprofit organization called Inclusive
Prosperity Capital, which will provide capital for clean energy investments in low- and moderate-income
communities and other underserved market segments. In establishing the organization, the bank envisioned an
entity that could support markets outside Connecticut.
For more information, see: and
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