Clean-energy space is investment-ready, says green-banking advocate
Sometimes it takes government cash to draw private investors to clean-energy markets. That, at least, is the theory behind green banking, an increasingly popular strategy that injects public money into risky or underserved markets. As executive director of the Coalition for Green Capital, Jeffrey Schub is at the forefront of the U.S. green banking movement — and in an exclusive interview, he tells Entelligent how green banks work, why they matter, and how their efforts will ultimately allow institutional investors to wring more stable returns from clean energy markets.
Can you explain the concept behind green banks?
They’re public or quasi-public financial institutions that use public dollars to facilitate private investment in clean energy. Typically, governments create purpose-built institutions that receive public dollars as investment capital, and then use that money to drive more private investment to things like energy efficiency and solar power, through credit enhancement, partial loan guarantees, or warehousing roles. It dovetails with, but also tries to lead, private investment — the goal is to stay one step ahead of the market.
There are already plenty of clean-energy investors. What need are you serving?
There are lots of investors, but so far the markets aren’t being filled. Take SolarCity — they offer a very attractive, easily adopted solar lease product that’s a great green finance solution: there’s no money down, you pay it off over time, and it’s cashflow positive. That’s really great — but not all households in America qualify for that financial product. SolarCity only operates in certain states, so that’s half the population lost right there. And you have to own your own home, so you lose half again. Then credit scores knock off another piece, and your home also has to be facing the right direction — in the end, only about 10 percent of American households are able to get a lease from one of these fabulous third-party-owned solar companies.
I’m not saying this to attack these companies — quite the opposite — but simply to show that there’s a gap. Green banks aren’t providing solar rooftop leases to creditworthy customers in states where private investors are already doing that: we’re trying to serve the other 90 percent of households.
So you invest in those underserved markets, and hope that private investors will follow your lead?
Yes — if a green bank does well, it should eventually put itself out of business as private capital moves into the markets it’s targeting. Green banking is really about action, not words: we’re showing the viability of financial products and strategies, not making an argument about climate change. If we were trying to simply convince investors to put their money into clean energy, we might get there eventually, but time is of the essence. We can’t wait 20 or 30 years for the markets to shake out.
The thing is that as people try to green the investment space, it’s really important for the government to have some skin in the game. You can make arguments, and plead, and tell investors they should be investing, but it doesn’t have the same impact as putting actual money on the line.
Where are the big opportunities in the low-carbon sector?
Everyone focuses on solar, but I do think it’s worthy of that focus. The technology cost is falling so rapidly, and the opportunity in solar is just so ripe and apparent. Distributed solar has a really fast growth curve in front of it, and utility-scale solar is also quickly becoming cheaper than conventional generation technologies.
Building efficiency is also a big opportunity — the kilowatt you don’t use is the cheapest. And the other safe bet I’m eager to have green banks play a role in is battery storage. Batteries are maybe 10 years behind solar, but there are already cool financing solutions coming up. As solar and renewables take up more space on the grid, storage becomes ever more critical. You can imagine a battery in the car, solar on the roof, and all of a sudden you’ve got a very different energy landscape, with different value streams that both utilities and customers can benefit from.
Is enough money being put into the clean-energy sector?
No, not even remotely close. We need to quadruple the amount of clean energy investment, and then sustain that. But I’m optimistic that it can happen. Some portions of the private capital markets are like a cruise ship: they’re slow to turn, but once they’re heading in the right direction they’ve got a lot of power behind them.
The one real saving grace that I keep coming back to is that renewable energy is totally different from fossil-fuel energy, in that it follows a technology cost-curve rather than a commodity cost-curve. The price of renewable energy will approach something extremely low, the same way semiconductor pricing has, because that’s just how technology works.
That’s very different from fossil fuels — there’s no inherent reason that gas should be cheap, and there’s nothing that will keep its price permanently low. But over time, clean energy prices will continue to go down — and the moment that a solar electron is cheaper than a coal electron, the whole value proposition changes, and it becomes an incentive for different kinds of investors.
So we’ll see different kinds of investors entering the clean-energy space?
Exactly. Are the investors now earning 24 percent returns on solar investments going to be the same ones in the market 10 years from now? No, those returns won’t be available — but different investors will find ways to make money. A private equity firm might not be interested in earning a 3 percent or 4 percent consistent yield over a 25 year horizon, but pension funds and other institutional investors are very well suited to those kinds of investments. If you look at who’s now investing in utility-owned power plants, it’s those same folks. Owning a 40-year asset isn’t about high returns, it’s about stable yields. As clean energy matures, the mix of investors interested in the market will change too.
Ben Whitford is the US correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.