Green Banks Spring Up in States, Spurred by $27 Billion Fund

The EPA’s new $27 billion clean energy fund is fueling interest in both red and blue states to launch their own green banks to leverage investment in solar, wind, and energy efficiency projects.

Green banks opened in about a half dozen states in the past two years, including California, Colorado, Illinois, Nevada, and Pennsylvania, and other states are getting closer to instituting them. Illinois launched two green banks in 2021, and Maine passed legislation that year establishing its Clean Energy and Sustainability Accelerator to mobilize funding for renewable energy, grid improvements, and electric vehicle charging stations.

“I don’t think it’s a blue or red state thing—I think under the IRA, you would be foolish to not try to find ways to bring one of the fastest growing areas of investment activity into your state because it’s a job-rich” proposition, said Rachel Kyte, dean of Tufts University’s The Fletcher School, referring to the Inflation Reduction Act, which included the $27 billion clean energy fund.

The fund provides about $20 billion to promote green bank financing and leverage other climate-friendly investments. An additional $7 billion is reserved for states, municipalities, and tribal governments’ efforts to benefit low-income and other disadvantaged communities.

Green banks have generally found more fertile ground in blue states, but they’re making inroads in red states including Alaska, Florida, and Texas.

Florida’s Solar Energy Loan Fund, a nonprofit that began more than a decade ago with $2.9 million in Energy Department seed money, has initiated small pilot lending efforts in Alabama, South Carolina, and Georgia. The Clean Energy Fund of Texas, launched in December, aims to accelerate investment in low- and moderate-income home and business owners in energy efficiency, weatherization, and renewable power.

In Alaska, Gov. Mike Dunleavy (R) this spring backed legislation to finance sustainable energy projects across the state and weatherization for Alaska homeowners, who face some of the highest home heating costs in the nation. The bill fell short of passage this year, though it secured hearings this spring in both chambers, raising hopes for the 2024 session.

“I’m pretty certain that it will be passed next year, and one of the main reasons is just the political reality of the federal green bank money,” said Matthew Jackson, climate organizer for the Southeast Alaska Conservation Council. “If we don’t create the state bank, we’re going to be missing out on our slice of the pie.”

Clean Energy Investment Locally

The $20 billion portion of the Environmental Protection Agency’s clean energy fund could mobilize $250 billion or more in total investment, tackling one-sixth of US emissions cuts needed in the next decade for the US to meet President Joe Biden’s net zero emissions pledge by 2050, according to an April report from McKinsey & Co.

State and local green banks and other agencies and nonprofit groups have mobilized $14.8 billion in green investments since 2011, leveraging $4.2 billion in public funds, according to a recent report by the Coalition for Green Capital.

Green banks at the county level, including Maryland’s existing Montgomery County Green Bank, say they’re well positioned to leverage that federal funding.

Such local green banks are often already aligned with the environmental equity goals of the EPA green bank mandated by Congress, said CEO Stephen Morel, because “that mandate is already built in through a focus already” on low- and moderate-income residents.

Morel expects the lure of $27 billion in federal green bank funding “will result in the creation of many more county-level green banks and similar local entities” as they already have a track record in producing projects “with strong community impacts.”

Projects funded by the Montgomery County bank include financing a rooftop solar project for an affordable multifamily property in Gaithersburg, Md. The project is being developed in partnership with Virginia Community Capital, a community development financial institution, and NYCEEC, a New York lender for green projects.

The $11.4 million project, a 2.18-megawatt solar array at a 684-unit building begun in April, will save money for the building owners and reduce utility bills over time for renters, Morel said. The project also will avoid 2,000 metric tons of greenhouse gas annually.

The county’s green bank has managed roughly $30 million in projects, a portfolio Morel expects to grow to about $200 million over the next five years.

Attacks Worry Advocates

Some green bank advocates worry that Republican-led efforts to rescind climate and clean energy provisions in the 2021 climate and tax package could roll back benefits to disadvantaged communities.

“We are already concerned that there’s a threat” to the climate law even before significant portions of the $27 billion in green bank funding is awarded, said the Rev. Michael Malcom, founder and executive director of the People’s Justice Council and Alabama Interfaith Power and Light, which coordinates faith communities in backing environmental and climate action particularly for disadvantaged communities.

Federal green bank funding, along with other clean energy incentives in Biden’s landmark climate legislation, is in the crosshairs as House Republicans seek leverage for spending cuts in a deal to increase the nation’s debt limit. But that effort faces significant pushback from Democrats who control the Senate and White House.

While many Southern states have been slow to establish green banks, they also have policies that act as a disincentive to residential solar projects, Malcom said.

“It’s not just whether a state is creating a green bank or taking green bank money, it’s whether they are even open” to policies incentivizing clean energy, he said.