What are Green Banks and why won’t they take my money?
Find out what Green Banks are, why they are important to the growth of renewable energy, and how you might be able to take advantage of their low-cost financing options.
By GREENPORTFOLIO TEAM
February 22, 2021
Green Banks are understandably something that eco-conscious individuals want to use, but they aren’t retail banks where an average person can open a bank account. Instead, they refer to a specific type of quasi-governmental entity that works to support the financing of green projects. However, there are ways that individuals can use some of their services. Read more to find out what they are, why they are important to the growth of renewable energy, and how you might be able to take advantage of their low-cost financing options.
What are Green Banks?
In the United States, Green Banks are generally state-run entities with a mission to make financing for renewable energy and energy efficiency projects more readily available. There are a number of states which run these types of banks including New York, Connecticut, Rhode Island, California, and Hawaii. A number of counties throughout the country also run similar, smaller programs.
The role of Green Banks is to make it easier for financial institutions, like institutional banks and pension funds, to invest in green projects. Historically, it could be quite difficult to get a loan from a bank that was unsure of the risk involved with this type of investment. This was especially true when solar panels and other energy efficiency projects were not as common. The bank might refuse to loan money for such a project or offer extremely high rates. Green Banks filled an important role by offering low-cost loans directly to homeowners or solar contractors. They often act as aggregators and sell a bundle of loans to a bank or other institution. By grouping many of these loans together they reduce the cost of finding and acquiring individual loans while diversifying the location and ownership of projects. This lowers the overall financial risk to the bank and makes renewable energy financing more affordable on the whole.
Green Banks at the state or county level can also facilitate something called a Property Assessed Clean Energy (PACE) Loan. Because they are part of a government, Green Banks can essentially use the state or county’s taxing authority to finance clean energy projects. In participating states, property owners can take out a loan for a renewable energy project and pay back the loan through additional property tax payments for up to 20 years. This is particularly useful when the property is sold. Since the loan is tied to the property taxes, the loan transfers to the new property owner and they continue paying off the balance as part of the property taxes. Banks view these types of loans as low risk since it is difficult for the borrower to avoid paying the property taxes which repay the loan. This lowers the risk and the cost to finance the project.
But what about banks that say they’re “green”?
As retail banks start to label themselves as sustainable and offer opportunities to invest in renewable energy projects to consumers, the definition of what a Green Bank truly is can sometimes be overlooked. Even though individuals can’t deposit money at Green Banks, other banking options are available and growing in popularity. If you are someone who wants to use a bank that aligns with your values, Certified B Corp banks are good options. Additionally, retail banks have started offering checking and savings accounts that support renewable energy projects with your deposits.
How can I use a Green Bank?
Green Banks are not retail banks so you cannot open an account at one as an individual; you can’t use a Green Bank to invest in clean energy installations throughout the country with your personal capital. However, you can utilize Green Banks in a few ways. Depending upon the programs in place where you live, you may be able to apply for a renewable energy loan through a Green Bank if you are planning to install wind or solar energy units on your property. Alternately, you might have the option to apply for a PACE loan if it’s available in your area.
It is likely that Green Banks will continue to be established across the country and perhaps even nationally. On the whole, Green Banks have been very effective at encouraging investment in clean energy without taxpayers having to take on undue costs or risks. If you are considering a renewable energy or energy efficiency project yourself, see whether your state offers any of these innovative and low-cost financing solutions. And in the meantime, if you are looking for a new “green” bank, check out our recommended banking options.
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