The Role of State Green Banks

1. The Role of State Green Banks Kenneth Berlin Senior Vice President (202) 371-7350 kenneth.berlin@skadden.com Reed Hundt CEO (202) 494-4111 rehundt@gmail.com www.coalitionforgreencapital.com

2. The Coalition for Green Capital Consulting • Nonprofit 501(c)(3) organization • Established in 2012 • Based in Washington D.C. • Full time staff in DC, NY, CA Modeling Policy CGC’s mission is to create demand for clean energy and energy efficiency and reduce carbon emissions by establishing green banks at the state, federal, and international levels. Networking Advocacy

3. The Coalition for Green Capital develops Green Banks that provide: • Low-cost financingfor clean energy projects • 100% financingfor residential and small business energy efficiency programs • Greater liquidity for clean energy instruments • Solutions that address market failures

4. Coalition for Green Capital works at the national level • American Clean Energy and Security Act: Green Bank (H.R. 2454) - $7.5 billion • Senate Energy Committee Bill - 2010 - $10 billion • Developing new draft federal green bank legislation • Federal Green Bank would be funded either by bonds or borrowing from Treasury • 75% of funds would be lent to state green banks

5. And the Coalition is leading the green bank movement at the state level • January 2011 – CT Passes CEFIA legislation. • Early 2013 – Hawaii establishes green bank-type entity with $100-$200 million in bonding authority. • February 2013 – Senator De Leon of Californiaintroduces SB798–Green Infrastructure Bank. • September 2013 – Governor Cuomo of NY files for utility commission approval of green bank with goal of $1 billion in capital. • CGC is currently working in 4-7 additional states.

6. The Green Bank Approach • Repurpose existing state funds into a new entity or within an existing finance authority so they are: • Matched with private fundsfrom investors with patient long-term capital who are seeking a conservative rate of return • Use bonding authority to raise additional funds • Lower the cost of clean energy solutions and address market failures • Push programs awayfrom rebates, grants, loan write-downs and subsidies and intorevolving loan programs • In revolving funds same dollar can be used multiple times • Financeboth EE and RE deployment with no tech risks • Develop different structures for higher risk projects

7. The Coalition for Green Capital wants to establish Green Banks, design products, lead interstate collaboration • To pass green banks, buildingcoalitions in states and analyzingeach state’s legal and energy landscape • Developing innovative products to stimulate demand for green bank financing • Products for solar PV market such as Connecticut Solar Lease Program 2 • Design green bank product to finance EV charging stations • Build 100% financing products for EE, paid back through savings • Planning Green Bank Academy to facilitate collaboration between Green Banks • Two-day workshop in D.C. for state energy leaders to learn green bank building tools • Will identify ways in which green banks can develop products together and standardize practices

8. Green Banks can pull several levers to make clean energy cheaper • Cheap and Available Financing • Securitization • Scale • Technology Advances • Subsidies & Tax Policy

9. Green banks can reduce financing costs across clean energy markets with many financial tools Apply Any Product to Any Market

10. Because Green Banks are nonprofit, financing costs for clean energy are lower Expected Returns of Typical Clean Energy Investors Rather than maximizing return, Green Banks offer cheap capital in order to lower consumer payments for clean energy

11. The Brattle Group “Rooftop Solar PV Green Bank Financing Model” • Focused on incremental benefits of Green Bank funding at project level • Based on illustrative specifications provided by CT Clean Energy Finance and Investment Authority (CEFIA) and the Coalition for Green Capital (CGC) • Model derives key metrics for behind-the-meter solar: • Specifications including: • Installed costs • Regional capacity factors1 • State policies and incentives1 • Capital structure including Green Bank Debt • 1.Initially shown for Connecticut • Key metrics: • Retail cost2 • Equity returns • Installed capacity per dollar of Green Bank Debt • 2.In the form of a 2013 levelized cost of electricity, net of state incentives and RECs.

12. Illustrative Base Case • Under above assumptions, reliance on: • Tax equity • State incentives • RECs • Would hold retail costs at $0.210/kWh (without Green Bank Debt)

13. Green Banks can make residential solar cost competitive in Connecticut with a 20% investment Green Bank Makes Clean Energy Cost Competitive • In Connecticut, for example, Green Bank debt brings price of solar electricity below retail • Highlights significant impact financing cost has on clean energy price • Assumes only 20% Green Bank debt investment • Inclusive of current Connecticut subsidies Retail Price in CT 1) Capital structure is 20% Green Bank Debt, 20% Commercial Debt, 48% Tax Equity and 12% Developer Equity. Assuming Green Bank debt offered at 2% for 15 years, Commercial debt is at 6% for 6 years, developer equity return is 15%, tax equity return is 12%, 15-Yr REC price is 3 cents/kwh and 6-Yr State Incentives are 22.5 cents/kwh. Source) Rooftop Solar PV “Green Bank” Financing Model, Sponsored by The Connecticut Clean Energy Finance and Investment Authority and the Coalition for Green Capital, Developed by the Brattle Group. Available for download from: http://www.coalitionforgreencapital.com/the-model.html

14. Potential Impact of Green Bank Debt Green Bank Scenarios1 defined per capital structure scenarios shown below: 1Green Bank scenarios for illustration purposes.

15. If Green Banks provide enough investment and solar install costs come down, prices will drop dramatically Price of Electricity from Solar (cents/kWh) in CT as a Function of Green Bank Debt and Installed Cost • Other Assumptions • Developer Equity Return: 15% • Tax Equity Return: 12% • Total Leverage: 40% • Commercial Debt Interest: 6% for 6 years • Green Bank Interest: 2% for 15 years • 15-year RECs: $0.03/ kWh • 6-year State Incentives: $0.225/ kWh • Capital Structure is 20% Green Bank Debt, 20% Commercial Debt, 48% Tax Equity, and 12% Developer Equity. % of GB Capital in Structure Solar Install Cost ($/Watt) Pink-highlighted prices are below current retail electricity price in Connecticut If solar installed costs drop to $3.5/watt and 30% of investment comes from Green Bank, the consumer needs to pay only 8.5 cents/kWh to pay back investors with adequate profit. Source: Rooftop Solar PV “Green Bank” Financing Model, Sponsored by The Connecticut Clean Energy Finance and Investment Authority and the Coalition for Green Capital, Developed by the Brattle Group. Available for download from: http://www.coalitionforgreencapital.com/the-model.html

16. Green Bank investment + Private investment leads to more clean energy projects Technically Feasible Projects High Capital Costs Push Consumer Payments Above Retail Electricity Price Typical Capital Structure Economical Projects Lower Capital Costs Reduce Consumer Payments To or Below Retail Rates Green Bank Capital Structure Green Bank investment attracts private investors and increases size of clean energy market.

17. As Green Banks get paid back, they re-use money and leverage private capital to expand clean energy investing Illustrative Example of Green Bank Recycling and Leverage Original Investment • Same Green Bank dollars invested multiple times, re-leveraging private dollars • Recycling multiplies total clean energy investment • Illustration is conservative, as loan repayments occur constantly and cash can be redeployed throughout period Year 0: Initial investment attracts private capital Year 6: Investment is fully repaid First Recycling Year 6: Funds are recycled into a new investment, attracting more private capital Year 12: Investment is fully repaid Second Recycling Year 18: Investment is fully repaid Year 12: Funds are recycled into a new investment, attracting more private capital Public funds are lent Public funds are repaid Source) Based on CGC research in New York for the New York Green Bank in conjunction with Booz & Co.

18. Green Bank Models We have found that there are threeleading models for state green banks: Connecticut Model State Clean Energy Financing Authority Model Infrastructure Bank Model 1 2 3

19. The Connecticut Model 1 • Established Clean Energy Finance and Investment Authority (CEFIA): a quasi-public corporation that consolidatedseveral existing funding sources • Given the power to issue bonds • Authorized to raise funds from private sources of capital capped at an average rate of return set by the board • Permitted to financeup to 80% of the cost to develop and deploy a clean energy project and up to 100% of the cost of financing an energy efficiency project

20. The State Clean Energy Financing Authority Model 2 • Part of the state government, not a quasi-independent governmental entity • Separate entity would need to be established to raise private fundsand partner with the state financing authority under a formal partnership agreement • As in the Connecticut model, a state would determine whether it could consolidate other funds into the green bank authority

21. The Infrastructure Bank Model 3 • Clean energy projects and general infrastructure projects to be financed by a combined state energy and infrastructure authority or bank • Because of differences between infrastructure and clean energy finance, we recommend that the bank create separate “windows”for each

22. The Role of State Green Banks Kenneth Berlin Senior Vice President (202) 371-7350 kenneth.berlin@skadden.com Reed Hundt CEO (202) 494-4111 rehundt@gmail.com www.coalitionforgreencapital.com