Joe Romm’s Climate Progress has a lengthy post on the benefits of creating a public green bank that could work with the private sector to ease the transition toward a clean energy economy. The post is actually reproduced from the Center for American Progress, which praises proposed amendments to the U.S. Waxman-Markey bill that would create a clean energy bank within the Department of Energy. According to the amendments, the Clean Energy Deployment Administration, or CEDA, would direct loans, letters of credit, loan guarantees, insurance products and other financing options to support clean energy production, transmission, storage and other projects that could reduce greenhouse gas emissions or save energy. The administration would take a “portfolio investment approach” and “ensure no particular technology receives more than 30 per cent of the total funding available.” And all of this would be on top of existing loan guarantees and incentives offered by the feds.

Sounds like something Ontario could use, because even though our new Green Energy and Green Economy Act is an ambitious and progressive piece of legislation, and even though a newly proposed feed-in tariff program offers a huge incentive for developers, I’m still not convinced there won’t be a capital constraint that will ultimately slow down development. This is particularly true if, as the Ontario government has said, it wants to encourage community co-op and First Nations projects. I would even argue the federal government should consider creating such an institution, but that is not likely to happen under our current Conservative government, so no point in asking.

The Center’s John Podesta and Karen Kornbluh argue that the creation of such a bank is critical if we are to transition to a clean-energy economy and create the green jobs that will drive growth in the coming years. “It would enable clean-energy technologies—in such areas as wind, solar, geothermal, advanced biomass, and energy efficiency—to be deployed on a large scale and become commercially viable at current electricity costs,” they write. “Currently, both Congress and the American public are focused on proposed caps on carbon emissions and requirements that utilities increase their use of renewable energy and invest in energy efficiency. But far less public attention has been paid to the specific policies that will drive new capital investment into clean-energy technology. A Green Bank would facilitate the flow of private capital into renewable energy and efficiency projects on the drawing boards today.”

Fact is, clean energy deployment is suffering under the recession, and even upon recovery there’s no guarantee credit markets will loosen up. A green bank would ease the credit crunch, allow for predictable financing for large-scale projects, help clean-energy developers develop a financing track record, and by spurring more deployment would justify the huge investments required in the transmission system.

Ontario, like the U.S., is focused heavily on investment in renewable (clean) energy and establishing a cap-and-trade system that would mesh with those being developed by other provinces and states and, ultimately, the national system that would emerge in the United States. And, like the U.S., there’s not a heck of a lot of attention on the difficulty of raising capital. In a recent interview with Ontario Premier Dalton McGuinty and his Energy and Infrastructure Minister, George Smitherman, I raised the capital issue as a potential concern. Smitherman more or less dismissed it as unnecessary. The recession was temporary, he said, and the program incentives that would emerge out of the Green Energy Act would be enough to encourage development.

I think he’s seriously underestimating the situation out there, especially if the province imposes domestic content rules. Most economists will tell you that even when the economy recovers it will be a different economic environment. Credit will still be tight, and small developers that don’t have healthy balance sheets or a track record simply won’t be able to raise the capital they need. In the end, this means community co-ops and aboriginal projects lose, small developers lose, and only premium projects backed by large multinationals move forward. It would be a shame to put all this enabling legislation in place only to see projects stymied by an overcautious banking community. By creating a green bank, and arming it with capital raised through the issuance of green bonds, the transition to a green-energy economy could be rapidly accelerated.

The Center for American Progress describes what a green bank should be designed to do: In addition to direct financing of certain projects, “the Green Bank should also facilitate private-sector investments, not crowd out private investors. The bank should work  closely with private banks to provide loan guarantees, credit enhancement, and other financing tools to stimulate private-sector lending and investment in projects that cannot access commercial financing on economically feasible rates and terms.”

The center proposes that the bank initially have $10 billion for funding, and up to $50 billion over five years. The capital would be leveraged at a 10-to-1 ratio to provide loans, guarantees, and credit enhancement to support up to $500 billion in private-sector investment in clean-energy and energy-efficiency projects.” Scaled down for Ontario’s purposes, I’d peg the initial number at $400 million and $2 billion over five years, perhaps partly supported by an auction of carbon allowances and money raised through a green bonds issue.

Any thoughts?

Tags: George Smitherman, green bank, Waxman-Markey

This entry was posted on Monday, June 1st, 2009 at 10:06 pm and is filed under financing, ontario. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.