The Connecticut Green Bank has averted potential insolvency through a novel financing scheme it says will blunt the impact of the legislature’s raid of nearly half its operating budget.
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The Connecticut Green Bank has averted potential insolvency through a novel financing scheme it says will blunt the impact of the legislature's raid of nearly half its operating budget.
The state legislature in 2017 reallocated $155 million in energy-efficiency program funds, which are paid by electric ratepayers, to the general budget in order to help balance a major two-year deficit.
Of that total, $33 million was earmarked for the Green Bank, which represented nearly half of the quasi-public agency's operating budget.
To deal with the impact, the Green Bank, which administers renewable energy and building efficiency financing programs that leverage $6 in private capital for every $1 from taxpayers, has already trimmed staff, prioritized investments that have higher returns, and spun out a not-for-profit entity to take over some of its programs. But that wasn't enough.
It still owes the state $14 million this June, which will be the final payment related to the budget-balancing sweep.
However, the Green Bank would effectively run out of money if it made the payment, according to Bert Hunter, the organization's chief investment officer.
To ensure that didn't happen, the bank this month issued a “green” bond backed by 15 years of revenue from solar credits, which are generated every time a residential rooftop solar system in the state produces a megawatt-hour of energy.
When homeowners install solar panels on their roof, the Green Bank provides an upfront subsidy, or pays the subsidy over a six-year period if a system is leased from a third party.
The arrangement gives the Green Bank rights to solar-system produced credits, which utilities Eversource and United Illuminating are required by state law to buy.
Working with underwriter RBC Capital Markets, the Green Bank issued the green bond to a major insurance company, which has not been publicly named.
In all, the Green Bank received an upfront payment of $35.5 million from the deal, giving it much-needed liquidity. It will also receive approximately $18 million in residual payments over the next 15 years. The credits sold — produced by 14,000 rooftop solar systems across the state — would have otherwise brought the Green Bank approximately $71 million over the next 15 years.
That's more money, obviously, but the Green Bank's overseers say they didn't have much choice.
Besides the budget sweep, the Green Bank was already grappling with cash-flow issues because state law requires it to pay out solar incentives much sooner than it receives revenue back from the credit sales.
“Between us providing these incentives, and the budget sweep, it would have put us out of business,” Green Bank CEO Bryan Garcia said.
He said his board didn't view eliminating the solar incentive program as a good option either. For one, the program is enshrined in state law and meant to spur the adoption of green energy. Second, such a move would have hurt the solar-installation industry.
“The successful execution of the … green bond enables the Green Bank to pay the state back for the sweeps, while at the same time maintaining the market for local clean-energy contractors, reducing the burden of energy costs on families through clean energy,” he said.
Hunter said it was the first solar asset-backed green bond deal made by any U.S. green bank.
The Green Bank intends to do similar deals this year and next, though they will be a bit smaller, Hunter said.
While the recent transaction was a private placement, available only to institutional investors, he said the Green Bank is hoping to make future investments open to the broader public.
