Financing clean energy

How might a clean energy transition be financed? A couple of recent writings describe innovative approaches.

The Capital Institute’s John Fullerton makes a “qualified” case for spending down charitable foundations. After all, he argues, if the risks of a changing climate are as immediate as many scientists fear, these impacts “will overwhelm the good efforts of many other charitable initiatives.”

Could the philanthropic sector have a meaningful impact?

In the US alone, foundation assets now total $600 billion, and an estimated $41 trillion (yes, with a “T”) will transfer to the millennial generation over the coming decades. This financial wealth is built on and dependent upon healthy ecosystem function. Certainly the combined power of this capital, expressed as both outright grants (targeted at everything from policy work, to research and development, to illuminating the numerous promising solutions not yet on the mainstream radar) and high impact investments in the multitude of commercially ready solutions, could potentially break the inertia of business as usual. This power must be concentrated, laser like, on two parallel and complementary strategies at scale: 1) High tech – renewable energy technologies and infrastructure, and 2) High wisdom (to borrow a term from Alan Savory) – restoring the regenerative natural carbon sinks of the oceans, the forests, and the grasslands.

Meanwhile, a new report (“State Clean Energy Finance Banks: New Investment Facilities for Clean Energy Deployment“) from the Brookings-Rockefeller Project on State and Metropolitan Innovation highlights the role of green banks, especially the example of Connecticut’s Clean Energy Finance and Investment Authority.

The Connecticut model reflects the following key design elements:

• Establishment of a quasi-public corporation, CEFIA, to act as the clean energy finance bank…
• Consolidation of several existing funding sources into one clean energy finance bank…
• Authorization to issue special obligations in the form of bonds, bond anticipation notes, or other obligations…
• Authorization to raise or leverage (through credit enhancements) funds from private sources of capital at an average rate of return set by the board of directors…
• Authorization to finance up to 80 percent of the cost to develop and deploy a clean energy project and up to 100 percent of the cost of financing an energy efficiency project…
• Authorization to utilize financing tools such as direct lending, co-lending through public-private partnerships, provision of credit enhancements, administration of commercial property assessed clean energy, and securitization to finance the deployment of clean energy…
• Strong provisions on transparency, regular reporting to the legislature, and the development of standards to govern eligibility for loans…

In estimating the financial scale of the challenge, the Brookings-Rockefeller report cites Google’s Clean Energy 2030 plan (widely covered in the media in 2008 and published on Google’s Knol website, which is now gone):

One estimate, for instance, concludes that to reduce U.S. fossil fuel-based electric generation by a desirable 88 percent, among other things, by 2030 would require a net investment of $3.8 trillion in undiscounted 2008 dollars.

See also: NRDC’s Switchboard blog on “Clean Energy Finance 3.0 – The Rise of the State Green Banks.”