By: Brad Kane
As Connecticut places an increasing emphasis on the clean energy industry, more local banks are moving into the business of green financing.
“This is a new line of banking business that didn’t exist 10 years ago,” said Thomas Mongellow, executive vice president and treasurer of the Connecticut Bankers Association. “You are going to see banks become much more interested in it.”
First Niagara, which is headquartered in Buffalo but has a significant Connecticut presence, has invested more than $100 million over the past four years into areas like energy efficiency upgrades, solar panel installations, and fuel cells.
“We are doing more this year than perhaps all the other years combined,” said David Cantor, First Niagara’s Southern Connecticut regional team leader for business banking. “This is one area where we see a lot of economic activity, and an area that will see a lot of growth in the next 24 months.”
The movement in the market has been driven by Connecticut’s latest state incentive programs for green projects, and the state’s efforts to put more of the burden for financing these projects onto private lenders.
Connecticut established the Clean Energy Finance & Investment Authority in 2011 to leverage $40 million in public funding to get private financing for the clean energy industry. Since its founding, CEFIA has shifted financing for residential solar installations onto private lenders and established the Commercial Property Assessed Clean Energy (C-PACE) program to use private financing for business upgrades such as efficient lighting and heating systems, and renewable energy installs.
“We have made great progress with the banks in Connecticut,” C-PACE Director Jessica Bailey said. “They are key players in all of this.”
The C-PACE program specifically was designed to entice banks and marked a turning point in private lenders’ partnership with Connecticut incentive programs, Mongellow said.
In C-PACE, commercial property owners pay back their loans using the savings created by the energy projects. As a requirement of the program, the energy savings must exceed the cost of the loan payments, creating positive cash flow.
“That is what drives repayment of loans,” Mongellow said. “How can that not be good?”
CEFIA has arranged more than $15 million in C-PACE loans since the program’s January launch. C-PACE entices land owners to join by offering this property upgrade financing at no upfront cost.
Wall Street banks were the first partners in the C-PACE program, as they were more familiar with the structure, Bailey said. Local banks had a longer learning curve but are coming around now.
Connecticut banks also are becoming more comfortable with the state’s clean energy incentive programs and how they make projects more economical, said Paul Michaud, executive director of the Hartford trade group Renewable Energy & Efficiency Business Association.
With Connecticut’s Zero-emissions/Low-emissions Renewable Energy Credit (ZREC/LREC) program, banks now realize how obtaining these utility contracts gives a solar or fuel cell project enough steady revenue over 15 years to make it economically enticing for lenders. Banks can partner with solar installation companies to offer businesses and residents a number of financing options to make renewable energy economical, Michaud said.
First Niagara and Waterbury’s Webster Bank are particularly savvy in the green field, Michaud said.
“There definitely are some growing opportunities here,” said Jim Bzdyra, First Niagara senior vice president of commercial banking for New England. “We are even starting to see less reliance on state and federal programs.”
While projects like solar installations and fuel cells still rely a fair amount on programs like ZREC/LREC, that will decrease over the next five to 10 years, Bzdyra said. The price of solar equipment and installations is dropping, and states like Connecticut require their utilities to buy a set percentage of their electricity from renewable sources, which creates a steady flow of revenue for solar, wind, and fuel cell projects.
“That guarantees there is always a market for their product,” Cantor said.
As the need for government incentives diminishes further, the role of the private lenders will become more important. Because the revenue or savings generated by these projects will be enough to cover the loan, the startup capital from banks will play the vital role of getting these projects going.