“Green” community bonds and the age of social networking… a sustainable fit for your RRSP?
I’d like to start off by saying that the federal government and provincial governments in Canada have missed the boat. They had the opportunity to raise billions of dollars in green bonds as a way to make cheap debt capital available for big projects promoting industrial efficiency, renewable power or clean fuel production. At the same time, Canadians would have access to a safe and ethical investment, as green bonds could be purchased just like Canada Savings Bonds. Tom Rand, who leads the cleantech practice at Mars Discovery District in Toronto, spent much of 2007/2008 promoting the idea but unfortunately it got little traction within government circles. It could still be done, or some variation of it. The U.K. is getting ready to launch its first Green Investment Bank. In the U.S., the Department of Energy’s Loan Guarantee Program for clean energy projects has backstopped nearly $31 billion worth of projects and President Obama is seeking to double that amount, while the U.S. Senate is considering establishing the Clean Energy Deployment Administration, which would effectively operate like a green bank. Canada, it would appear, has nothing equivalent in the works, let alone under discussion.
The good news is that communities of like-minded folks, as I write in today’s Clean Break column, are taking the green energy funding challenge into their own hands. Several community co-ops have emerged that plan to issue “Community Bonds” as a way to raise cheap debt financing for local renewable-energy projects. SolarShare is doing it for solar PV installations. ZooShare is doing it for a biogas facility at the Toronto Zoo. WaterShare plans to do it for small hydro projects. Others are emerging, most learning from the early pioneering work by the Centre for Social Innovation in Toronto. It’s an innovative approach to a big problem, and it’s a positive story for green energy that could gain momentum as the first few projects of this type show success. Their approaches may differ slightly, but for the most part, if you’re a not-for-profit community co-op you can seek approval from the Financial Services Commission of Ontario to issue private bonds to people within your community or social network. You can even make these community bonds RRSP-elligible, making this a very attractive investment for citizens looking to put their money back into their own communities and, even better, support green energy projects at the same time.
It’s no secret that smaller community renewable-energy projects have had a difficult time raising capital from the usual suspects. Banks aren’t interested, and if they are, they charge interest rates that can make a project uneconomic. You’d think that in Ontario, where the feed-in-tariff program guarantees electricity payments over 20 years for renewable-energy developers, the banks would be more willing to lend. But the credit crunch persists. Community bonds have emerged as a way to go directly to local supporters of projects, and those local supporters in return get a decent return on their investment. The power of social media makes connecting with the community that much easier.
ZooShare plans to offer an annual rate of return of 6 or 7 per cent for community bonds that can be redeemed after seven years. Bonds can be purchased in $500 or $5,000 units, depending on an individual’s relationship with the zoo or distance from it. SolarShare is eyeing bonds that would pay 5 per cent annually over five years and could be purchased in $1,000 units. Both have figured out how to make these bonds RRSP-elligible, meaning they could be purchased through a self-directed RRSP account and the buyer could shift existing investments in that account to community bonds.
Now, there are always hiccups. The financial services commission has been slow to approve these community bond issues, as this is new territory for the commission and, from what I hear, they lack the budget to devote too much attention to it. This is where government could and should step in to help grease the wheel, so to speak. Also, banks are largely ignorant about these bonds and are unlikely to make them available to their customers, at least initially. There is a learning curve here for the large financial institutions to overcome. Credit Unions will, as usual, likely be the first to give their customers access to these bonds, and eventually one of the more progressive and sustainability minded big banks will move to distinguish itself by doing the same. Citizens who want to purchase these bonds, at the same time, will have to make some noise and push their banks to get on board. It won’t be easy, and it will take some time. Again, a little nudging from the government would help.
These community bonds, it’s important to keep in mind, aren’t as secure as your typical government bond. There’s no physical assets backing it or government purse, just a 20-year power purchase agreement with the Ontario Power Authority. Projects could fail. There is some risk. That’s why SolarShare, for example, doesn’t plan to sell bonds until it a project is built and operational. The bond issue, instead, will raise money to pay off bridge financing and other loans to get the project up and running. This significantly reduces risk for the community bondholders.
This kind of creativity is to be applauded. Community bonds solve a big problem. Another great approach is to allow homeowners to pay for solar PV systems through their property taxes. This is essentially what was done through the hobbled Property Assessed Clean Energy (PACE) program in the United States. Under this program, municipalities raise money through a bond issue that funds the installation of PV systems on residential rooftops or geothermal heat pump systems. Homeowners participating in the program gradually pay back the cost and interest of the system through their property taxes. No upfront pain. It’s another terrific idea, one largely ignored in Canada.
There’s still a chance to get our act together. Government green bonds, green banks, community green bonds, and PACE style programs could all be created and put to work across Canada, had we the vision and will to pursue them.