Green Banks: An Overview for Governors - National Governors Association (2024)

May. 15, 2023 |

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As Governors plan to meet their decarbonization, grid resilience and energy affordability policy objectives, innovative financing approaches like state green banks can be leveraged to accelerate investments in energy and infrastructure projects.

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State green banks are often administered by public, quasi-public, or 501(c)3 nonprofit entities that use public funds to facilitate and incentivize private capital investment in clean energy projects. Since the establishment of the Connecticut Green Bank in 2011, more than ten states have established similar institutions, though the products each green bank offers vary.

As Governors plan to meet their decarbonization, grid resilience and energy affordability policy objectives–and as they implement programs and funding established in the federal Infrastructure Investment and Jobs Act and the Inflation Reduction Act–innovative financing approaches like state green banks can be leveraged to accelerate investments in energy and infrastructure projects.

Governor-Led Actions to Establish or Support State Green Banks

Issue an Executive Order or Action: Governors can establish green banks through executive order or can allocate funding to green banks in executive budget recommendations.
Convene a working group or study on the benefits of establishing a state green bank.
Leverage gubernatorial influence to champion green banks and convene parties to plan their implementation.
Expand an existing state entity to house a green financing authority or grant a state agency enhanced financing capabilities through executive action or legislation.
Support legislation establishing a green bank; Governors can publicly support or endorse legislation that would create and/or fund a state green bank.
Appoint green bank leadership: in certain states, the Governor has the authority to appoint green bank leadership, which can provide an opportunity for Governors’ offices to implement policy goals.

Green Bank Financing Mechanisms

Also referred to as Energy Investment Partnerships (EIPs), Infrastructure or Resilience Banks, and Clean Energy Funds, green banks provide financing and incentivize investment opportunities to large private capital investors and smaller-scale consumer investors through the following types of financial instruments:

Ways that State Green Banks Work with Large-scale Private Capital Investors:

Direct, Market-Based Lending: Market-based lending occurs when a green bank invests directly, typically at the project level, in the deployment of clean energy and sustainable infrastructure. Market-based lending enables the stimulation of private sector participation by demonstrating the ability of clean energy and sustainable infrastructure asset classes to generate attractive risk-adjusted returns, and by creating financial structures that are standardized, commercially replicable and able to be scaled by private sector investors. Over time, this closes the funding gap and reduces the need for public sector intervention. NY Green Bank offers direct lending programs to facilitate project development.
Co-lending: Co-lending, or co-investment, occurs when a green bank invests in a clean energy project alongside a private investor. The capital contributions can vary (50-50, 80-20, etc.) but can fill financing gaps and reduce the risk for a private lender. The Connecticut Green Bank, D.C. Green Bank, NY Green Bank and the Hawai‘i Green Infrastructure Authority offer co-lending programs.
Loan Guarantees: Mitigating risk through loan guarantees reduces risk for private investors because the green bank assumes the obligation of payment in the event of a borrower default. In 2013, the New York State Energy Research and Development Authority, of which NY Green Bank is a division, issued a guarantee on the principal and interest of $24.3 million in Qualified Energy Conservation Bonds. The Rhode Island Infrastructure Bank offers guarantees on eligible projects through the Drinking Water Revolving Fund.
Favorable Lending Rates & Credit Enhancement: Offering favorable lending rates, such as low-cost and long-term financing, and credit enhancement increases the credit worthiness of a deal through guarantees, collateral or insurance. The Colorado Clean Energy Fund’s Residential Energy Upgrade (RENU) Loan program is an example of a credit enhancement program.
Warehousing & Securitization: Warehousing and securitization occur in instances where no private lender is willing to underwrite loans because a project is perceived as too risky, too new or not cost-effective. If a green bank elects to underwrite 100% of a loan and warehouse the loans itself, it can pool the loans to diversify risk and eventually attract private capital. NY Green Bank has engaged in this practice.

Ways that State Green Banks Work with Smaller-scale Consumer Investors:

Green Bonds: Green bonds are similar to traditional bonds. In Connecticut, individuals can invest as little as $100 in green notes issued by the Connecticut Green Bank that are used to finance clean energy projects. With an A-bond rating, the bonds carry a relatively low risk for investors.
C-PACE: C-PACE is an acronym for Commercial Property Assessed Clean Energy, a financing option offered by some state and local governments that uses capital to pay for the upfront costs associated with energy efficiency or renewable energy improvements for residential, commercial, industrial, nonprofit and multifamily property owners. Unlike other project financing, the borrowed capital is repaid over time by the property owner via a voluntary tax assessment that allows for long term financing and transferability of repayment obligations if the property changes ownership. The Maryland Clean Energy Center offers MD-PACE, which works through partnerships with local jurisdictions, offers no upfront costs to participants: C-PACE pays for 100% of a project and is repaid by the surcharge over a 20+ year period. Currently 38 states, many of which have not yet established a green bank, have enacted PACE-enabling legislation.
On-Bill Repayment: On-bill repayment plans allow consumers, businesses, and nonprofits to finance clean energy projects with no upfront costs and repayments through their utility meter. The Hawai‘i Green Infrastructure Authority offers the Green Energy Money $aver (GEM$) On-Bill program that allows customers to pay back the cost of installing solar PV, solar water heaters and other eligible clean energy upgrades through their monthly utility bill.
Renewable Energy PPAs: Renewable Energy PPAs, or purchase power agreements, are long-term contracts to buy renewable energy at agreed upon prices and amounts. A Solar PPA program connects a consumer with a solar developer to fit solar panels on a home or business, then establishes an agreement between the consumer and developer on the price to buy generated solar energy, which would be lower than the cost of energy charged by local utilities. The solar panels would be installed with no upfront costs, and the green bank would offer capital and investment tax credit incentives to the business and developer. The Montgomery County Green Bank in Maryland offers a Commercial Solar PPA program to small businesses and nonprofits.

These offerings can encourage and allow for private capital investment in clean energy projects that would otherwise be avoided by the private sector due to risk, lack of interest by the traditional finance sector, or other barriers to entry. In addition to these program offerings, Green Banks provide valuable technical assistance and resources to consumers as they plan clean energy projects and navigate the financing process.

State Green Bank Examples

Establishment Authority

Unlike conventional banks, green banks are generally established with both public and private dollars or a combination of the two. As a result, most are either public or quasi-public. Existing state green banks have been established in a variety of ways, but often have been borne out of a joint effort between a Governor and legislature. Typically, this occurs through a Governor proposing or championing legislation that would create a green bank or expand an existing state entity into a green bank which is taken up and passed by the legislature.

Examples of Existing State Green Banks and financing product offerings

There is long-standing bipartisan support for green banks across the country. More than ten states and territories have established green banks, including Connecticut, Colorado, Hawai‘i, Maryland, New York, Nevada and Rhode Island.

Bank: Connecticut Green Bank

Financing Programs Outside of Green Banks

While green banks can bring new capital to states to finance energy projects, Governors can still offer financing assistance without an established green finance authority. Many states offer financing programs to encourage investments in energy efficiency and clean energy through existing agencies, like state energy offices and state departments of commerce. These programs include residential or commercial Property Assessed Clean Energy (PACE) programs, revolving loan funds and loan loss reserve funds, as well as direct funding through grants and state tax credits. Examples include the New Hampshire Clean Energy Fund, which provides low-interest loans for energy efficiency and renewable energy projects. Missouri offers PACE funding statewide to residential, commercial, industrial, agricultural, multi-family, not-for-profit and public facilities.

Federal Funding Opportunities

Inflation Reduction Act: Greenhouse Gas Reduction Fund

The Inflation Reduction Act (IRA) established a $27 billion fund to mobilize financing and stimulate private capital investment in projects to reduce greenhouse gas emissions and air pollutants and promote clean energy, particularly in disadvantaged communities. The Greenhouse Gas Reduction Fund (GHGRF) will be administered by the Environmental Protection Agency (EPA). It will provide grants to state, local, tribal and nonprofit entities that are funded by public or charitable donations and are designed to provide funding and leverage private capital for emissions reducing projects.

Opportunities for Funding

On April 19, 2023, the EPA announced plans to hold three grant competitions for funding:

$14 billion for the National Clean Investment Fund Competitions: this competition will award two to three national nonprofits with funding to partner with private capital providers to deliver financing at scale to businesses, communities and community lenders for clean energy technology projects.
$6 billion for the Clean Communities Investment Accelerator Competition: this competition will award two to seven nonprofit hubs with the plans and capabilities to rapidly build the clean financing capacity of specific networks of public, quasi-public and non-profit community lenders—includingcommunity development financial institutions (such as Native CDFIs), credit unions, green banks, housing finance agencies, and minority depository institutions—to ensure that households, small businesses, schools, and community institutions in low-income and disadvantaged communities have access to financing for cost-saving and pollution-reducing clean technology projects.
$7 billion for the Solar for All Competition: this competition will award up to 60 grants to state, local, and tribal governments and nonprofit entities to invest in the deployment of residential, community and storage solar projects in low-income and disadvantaged communities.

Notice of Funding Opportunities for these competitions will be released in early summer 2023.

Additional Resources

Green Bank Resources and Research Papers

Infrastructure Investment and Jobs Act (IIJA)

NGA IIJA Implementation Resources

Inflation Reduction Act (IRA)

Greenhouse Gas Reduction Fund EPA Implementation Framework
NGA IRA Implementation Resources

This issue brief was written by NGA Policy Analyst Fiona Forrester. For more information, please contact fforrester@nga.org.

Green Banks: An Overview for Governors - National Governors Association (2024)

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The Connecticut Green Bank was the first green bank established in the United States. As of 2021, there are 21 green banks in 16 states and the District of Columbia, with $7 billion in investments since 2011.

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What is the mission of the DC green bank? ›

The mission of DC Green Bank is to provide access to capital, growing the clean economy to develop a more equitable, resilient, and sustainable DC.

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Starling Bank

We carefully consider who we invest in, taking into account a number of factors. We do not invest directly in fossil fuels.”

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Green Bank was a nationally chartered commercial bank headquartered in Houston, Texas. It was founded in 1999 and acquired by Veritex Community Bank in 2018.

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DC Green Bank is an instrumentality of the DC Government, meaning our initial funding is granted by the DC Government.

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