NY Green Bank, an investment fund for sustainable infrastructure projects, wants to ensure that disadvantaged communities across New York state aren’t left out of the transition to clean energy.
The publicly backed entity is developing a $250 million “community decarbonization fund” to provide low-cost capital to community development financial institutions and other lenders for eligible electrification, energy efficiency and onsite power projects in low- and moderate-income areas.
Since NY Green Bank was announced in 2013, it has invested more than $1.7 billion across 105 financial deals. The $250 million will come from its existing pool of capital, which has primarily come from surcharges on ratepayers' electric bills. NY Green Bank expects to launch the fund in early 2023, president Andrew Kessler said in an interview.
“It will be used to inject and capitalize underwriters that are already highly active and experienced in this marketplace,” Kessler said. “The idea is to go to CDFIs and provide them with several million dollars to augment their existing capital base.”
That would be welcome assistance for CDFIs, many of which are already investing in green projects, said Mary Scott Balys, vice president of public policy at Opportunity Finance Network, a national organization with more than 360 member CDFIs across the country.
Surveys from both Opportunity Finance Network and the Federal Reserve Bank of Richmond, which capture a fraction of the entire CDFI sector, have identified 98 CDFIs originating more than $500 million a year in clean energy financing, Balys said in an email.
“This means CDFIs are already on par or exceeding the green lending of green banks, without any targeted public sector support,” Balys said. “Partnerships like [the one with NY Green Bank] will increase the capital available to CDFIs for green lending projects, which will drive more resources to the low-income communities that are often disproportionately impacted by the effects of climate change and cost burdened by their energy needs.”
NY Green Bank has been increasing its focus on disadvantaged communities to make sure that its fight against climate change benefits all neighborhoods, Kessler said.
The entity, which operates as a division of the New York State Energy Research and Development Authority, is committed to advancing a goal under state law to invest at least 35% of its capital into projects that benefit underserved communities, Kessler said.
NY Green Bank has committed to meeting various renewable energy commitments within six years, ending Dec. 31, 2025.
To help steer its investments, the organization hired David Davenport last August as managing director in charge of lending activities in low- and moderate-income communities. Davenport has worked at Urban American Management, a real estate investment firm, and Citi Community Capital, a line of business at Citigroup that provides financing for affordable housing projects.
NY Green Bank’s idea for a community decarbonization fund emerged after a series of conversations with stakeholders about funding gaps and other challenges that exist for sustainable infrastructure projects in low- and moderate-income communities.
“This is an allocation of core capital from existing funds to create a financing program through which we will lend to lenders,” Davenport said. “We’ll be underwriting the underwriters.”
NY Green Bank will set investment guidelines for the fund, including a requirement that recipient CDFIs must show a pipeline of disadvantaged communities-related projects in need of financing, the organization said. In addition, CDFIs must have a history of providing debt capital to affordable housing and/or other disadvantaged communities-related projects.
Most NY Green Bank transactions are in the $5 million to $50 million range.
“We want to be able to reach into communities and fund smaller transactions,” Davenport said. “These lenders have access to smaller projects than we would otherwise be able to fund.”
NY Green Bank has pledged to make total investments of $225 million each fiscal year and expects to commit the same amount for the coming fiscal year, which begins April 1, 2023, according to a spokesperson for the organization.
The funding is critical for energy projects that don’t always meet traditional lenders’ underwriting standards because they are too small, not far enough along in development or perceived as risky due to the technology involved, Kessler said.
“Think of us as gap-filling capital,” Kessler said. “We’re enabling transactions that may not take place otherwise.”
The agreement will allow the state-backed investment fund to meet surging financing demand for renewable energy projects. It is the largest-ever private fundraising deal by a green bank in the U.S.
NY Green Bank is continuing to look for sources of liquidity from the private sector, Kessler said. Last summer, it
By the end of this year, there could be another infusion of capital, Kessler said.
“We have a handful of loans in our portfolio that we think could be monetized and, through that, raise additional liquidity,” Kessler said. “But it might look different from the Bank of America deal.”
