If you’ve been noticing more solar panels across the state of Connecticut, it’s not just your imagination. Once upon a time, solar panels might have been something you only saw on your eco-warrior neighbor’s roof, but the state’s public-private partnership has worked quietly behind the scenes to get private capital comfortable with solar panels and other clean energy.
The declining cost of solar panels, coupled with state and federal tax incentives, has made the technology (known formally as photovoltaic, or PV, systems) more attractive to both homeowners and business owners interested in tapping the sun for their own power.
Plus, consumers and businesses that generate excess electricity can earn credits from their electrical utility for feeding it back into the grid – and Connecticut has some of the highest energy costs in the country.
But while solar panels are getting cheaper, they can still cost about as much as a new car, making them financially onerous to purchase in one shot. And banks are still getting comfortable with the intricacies associated with financing PV systems for both residential and commercial properties.
“It’s very easy to extend short term credit, but the real challenge with solar financing is mobilizing capital that can be long term and low cost and account for whatever the credit challenges might be associated with the customer, either at the individual project level or in a pool of customers,” said Ben Healey, director of clean energy finance at the CT Green Bank.
That’s where the CT Green Bank comes in. Established in 2011, this public-private partnership mobilizes private sector capital for clean energy upgrades throughout the Nutmeg State. The Green Bank might work with a real estate investment trust or private equity investor or a more traditional bank, and it has a variety of financing vehicles it can scale to fit a range of projects.
One prime example is its $68 million solar lease program, now in its second round of funding. First Niagara Bank and Webster Bank both kicked in the cash to make it work, US Bank acted as the tax equity partner, and the Green Bank took a sponsor equity position. That private-public coalition ultimately made it possible for about 1,200 Connecticut homeowners, as well as dozens of local businesses, nonprofits and municipalities, to sign leases and install solar panels on their roofs.
The size of the project, the Green Bank’s secure and attractive financing structure, and the tax equity, is part of what made it so attractive to the banks.
According to Carolyn Morrison, vice president of commercial lending at Webster Bank, “Having a big number of homeowners helps spread the risk. Life happens, so even with good credit scores and debt-to-income ratios, there’s always going to be one or two that fall down. But having a big group of homeowners helps spread that risk of an individual default.”
Making It Work With Teamwork
Healey called it “a virtuous cycle.” The program accomplishes several of the Green Bank’s objectives: educating two major regional banks on the intricacies of financing solar panels and helping them get comfortable with the asset class. And it gets solar panels onto the roofs of Connecticut homeowners, even if they have less than stellar FICO scores.
Of course, challenges persist in financing solar upgrades on both residential and commercial properties.
“Banks and other credit grantors have really a couple challenges in financing renewable energy,” said David Cantor, the New England region team leader for First Niagara Bank’s business banking division. “Many of the companies involved are new or don’t have histories of profitability. The banks are typically not very familiar with the different technologies involved in this stuff and the collateral value is not always what we want to see.”
The Green Bank also uses its C-PACE program to boost energy upgrades in the commercial sector.
“We put that financing right on the municipal tax bill, enhance its security and doing that makes it possible for local or regional lenders to come in and take a position they otherwise wouldn’t have been comfortable doing,” Healey said. “We take it from a risky credit to a very secure credit.”
The private financing is key to the Green Bank’s central mission, he added.
“There are not going to be a continuing stream of government subsidies for the green energy transition, but these projects are eminently financeable if we can demonstrate to the private sector that there is an attractive opportunity,” he said.
And to hear the banks involved talk about it, it sounds as though the Green Bank is well on its way to proving that point.
“I can’t say enough good things about the team they have at the Green Bank, especially when we were first entering into the market five years ago,” Morrison said. “They were very helpful in educating us on the process.”
