Mission-driven investors have a key role to play in addressing persistent structural barriers in clean energy markets. The flexibility they offer compared to commercial capital can be an important factor in meeting climate-related targets. And they have a growing support system in the form of intermediaries like Green Banks, which can help mission-driven investors identify the most impactful and appropriate investment vehicles.
These were among the main takeaways from Confluence Philanthropy’s “Investing in Domestic Clean Energy Projects 101” webinar on January 28. The webinar featured Jill Bunting, Deputy Director at The Coalition for Green Capital; Curtis Probst, Co-CEO at NYCEEC; and Aaron Seybert, Managing Director at the Social Investment Practice of The Kresge Foundation.
Mission-driven investment in US clean energy is rising. Bloomberg found that investment in 2019 topped $55 billion, a 28% increase from the prior year. At the same time, investment is nowhere close to where it needs to be to address climate change. Globally, annual investment in renewable energy capacity would need to more than double from current levels to put the world on track with the objectives of the Paris Agreement.
Despite progress on the structuring side, there are persistent barriers that prevent a seamless connection between capital and projects. These barriers include project size, project complexity, credit issues, and technology risk. As a result, many large lenders are not focused on driving capital into the broadest set of possible projects.
Mission-driven capital is well suited to narrowing in on these barriers. For example, large foundations can put their balance sheets to work by providing a credit enhancement or similar risk mitigants to a portfolio of clean energy projects. Smaller community foundations, family offices, or other investors may have particular local expertise that enables them to take on project-level risk and directly invest in projects.
Intermediaries have a critical role to play in identifying projects and building tools to overcome these barriers. In particular, the ability of intermediaries to bundle projects together can enable clean energy financing to move more quickly and efficiently as repeatable structures are developed at scale. Intermediation can also be useful for mission-driven investors who may prefer the simplicity of working with a partner instead of identifying a structure that allows them to make direct, project-level equity investments. Working with a partner can also make it easier to “crowd in” commercial capital alongside mission-driven capital. Federal legislation to create a National Climate Bank or similar pool of capital may create another partner for mission-driven investors to work with at scale.
Some mission-oriented lenders attending the webinar had questions about their ability to participate in clean energy transactions, since they cannot typically take advantage of common tax credits. Panelists noted that investment structures have matured to the point where it is straightforward to bring in other investors who can use tax credits alongside debt from foundations.
Finally, investing in clean energy projects often produces social benefits alongside environmental ones— further aligning these projects with the goals of mission-driven investors. Many projects and programs at Green Banks and elsewhere are in fact designed to co-create these benefits. This includes programs that target solar and energy efficiency at underserved populations (such as on-bill financing programs for renters), or alternative underwriting and targeted product design that open up new markets (such as low-income community solar). Increased clean energy investment can deliver meaningful energy bill savings to a wider set of households and businesses, combined with benefits to public health and quality of life.
- Jeffrey Schub, Executive Director, Coalition for Green Capital
- Jill Bunting, Deputy Director, Coalition for Green Capital
