State Green Banks to Receive ‘Historic’ Rush of Federal Funds

State green banks are expecting a historic influx of billions in federal dollars that is poised to scale up clean energy lending across the country and supercharge public-private climate partnerships.

The Biden administration’s National Clean Investment Fund (NCIF) awardees and sub-awardees are preparing for July 1, the Environmental Protection Agency’s target date for dispersing $14 billion to clean energy financing institutions.

The Coalition for Green Capital—one of the program’s three primary recipients—won $5 billion and plans to launch a national green bank that will coordinate with a network of state green banks to summon a “tsunami” of clean, cheap power, said Reed Hundt, the coalition’s CEO.

These state green banks, some nascent and some established, are quasi-governmental or nonprofit lenders that leverage public dollars to attract private investment to the clean energy space. So far, at least 10 states have this type of finance authority—and they’ve spurred nearly $15 billion in total public-private investment since 2011—but more banks will need to pop up to complete the network, Hundt said.

“Money attracts money,” he said. “This is a good start,” but it’s still “only a start.”

‘Catalytic Capital’

The NCIF was one of three programs under the federal Inflation Reduction Act’s $27 billion Greenhouse Gas Reduction Fund—one of the 2022 climate law’s largest investments and the “holy grail” of funding for state green banks, according to Paul Scharfenberger, CEO of the Colorado Clean Energy Fund.

NY Green Bank, created by New York state regulators in 2013, is one of 16 Coalition for Green Capital sub-recipients under the NCIF. It’s unclear exactly how much the bank will get, but it was penciled for up to $1.3 billion in the coalition’s initial $10 billion application.

Bank President Andrew Kessler says he still expects a huge amount of funding, which will go toward his existing project pipeline and help the state’s quest to slash carbon emissions 85% by 2050. The bank is poised to focus specifically on financing projects for building electrification, battery storage, and clean transportation, he said.

NY Green Bank is the country’s largest institution of its kind, and it has already committed $2 billion to clean energy projects since its inception a decade ago. But for many states, having enough clean energy capital to attract private investment is new territory, Kessler said.

“It’s a historic event,” he said, calling the Greenhouse Gas Reduction Fund and its associated programs the “catalytic capital that this country needs.”

Green bank Colorado Clean Energy Fund, which mobilized $118.2 million in clean energy financing last year, was also listed as a sub-recipient in the Coalition for Green Capital’s initial EPA application. The green bank has an “insanely robust” project pipeline and is expecting an EPA award north of $150 million this summer, said CEO Paul Scharfenberger.

“It’s almost impossible for us to raise that kind of money from the private markets” because clean energy projects don’t always produce the double-digit returns that other sectors do, he said.

Colorado’s bank, which has been around since 2018, will use its slice to capitalize programs for EPA priorities like small solar projects, community energy generation, and more, Scharfenberger said.

“The intent is to reach underserved sectors and communities where money isn’t currently flowing,” not to compete with sectors that investors already flock to, he said.

As federal dollars flow into states, awardees and sub-awardees will need to forget about their funding competition and collaborate as much as possible, Scharfenberger said. The Coalition for Green Capital isn’t the only primary recipient dealing with states: Climate United Fund, which won $6.97 billion through the NCIF, expects to partner with green banks, too, said CEO Beth Bafford.

“We’ve been working with many of them for a long time,” Bafford said. “We’re looking forward to working with the other awardees, including Coalition for Green Capital and Power Forward Communities, to really coordinate our approach across the ecosystem.”