There’s no time to waste.
Barely hours after the Biden Administration unlocked $27 billion in grants to catalyze America’s transition to a green economy, recipients were already kicking into gear.
Appalachian Community Capital, a nonprofit in Christiansburg, Virg., that was awarded $500 million on Friday from the Greenhouse Gas Reduction Fund, formally announced a new “green bank” aimed at leveraging private capital to finance $1.6 billion of 2,000 new energy projects in rural communities across Appalachia.
The awards by the Environmental Protection Agency to “green banks” — public, quasi-public or nonprofit financing entities that leverage public and private capital for clean energy projects — and to community development financial institutions, or CDFIs, coalitions of nonprofits, and state, tribal and territorial governments, have set into motion one of the largest expansions of community lending in US history.
The historic grants aim to unlock at least seven times their amount in private capital for climate-friendly upgrades for homes, schools, community centers and businesses. Upgrades include solar panels and energy efficiency heat pumps.
The GGRF will drive “the decarbonization of homes that the climate demands” and “mobilize additional tens of billions of dollars of private capital to improve Americans’ homes,” Amir Kirkwood of Justice Climate Fund told ImpactAlpha.
Community lending takes center stage
The awards, a signature of President Joe Biden’s sweeping climate strategy, have set into motion one of the largest expansions of community lending in US history. At least $21 billion will flow to low-income and historically disadvantaged communities across the country, including more than $4 billion for rural communities and nearly $1.5 billion for Tribal communities.
“EPA knew it had to move swiftly and deliberately to get this historic funding out the door,” EPA Administrator Michael Regan said in a statement Friday. “American families will soon feel the benefits in the form of lower energy costs and revitalized communities, while the United States leads the clean energy economy of the future.”
The EPA announcement came on the second anniversary of the Inflation Reduction Act, or IRA, the sweeping climate and health care initiative in 2022 that authorized the GGRF. Rather than a national “green bank,” the fund has been designed as a distributed and decentralized ecosystem of lenders and financial structures that expands the capacity for community-based green lending for decades to come (see, “Architecting a green bank for the US”).
Vice President Kamala Harris, who is headed to Chicago for this week’s Democratic National Convention, where she has enough delegates’ votes to be named her party’s contender in the November presidential election against Republican nominee Donald Trump, cast the tie-breaking vote for the IRA.
The EPA signed initial contracts, now finalized, for three buckets of capital under the GGRF. The biggest chunk is $14 billion under the National Clean Investment Fund, which will provide catalytic capital to accelerate green financing by CDFIs and other lenders. The $6 billion Clean Communities Investment Accelerator provides training and capacity building to prepare lenders and communities to deploy the capital. And the $7 billion Solar for All program supports state-run solar programs for more than 900,000 households in low-income and disadvantaged communities.
Transparency and reporting
But the hard work has just begun. With award money now flowing, a series of complex tasks rises to the fore. Grant recipients must get buy-in from local and state agencies. They must create and deploy new green lending products and mechanisms, including complex financing schemes like secondary markets for green loans and municipal bonds to finance green infrastructure. They must accelerate their vetting of project developers. And they must leverage private capital to ensure that GGRF projects multiply their bang for the buck (see, “Investors ready products to amplify US green bank funding”).
“As the next phase of work shifts from hammering out the fine print into capital mobilization and deployment, the hurdles are now likely to shift to one of network coordination and deployment constraints,” the Milken Institute’s Rachel Halfaker told ImpactAlpha.
Project financing gaps abound — for example, for houses with roofs that need repairs that are not eligible but are necessary before loans can be made for the installation of solar panels (see, “Lenders face a steep learning curve in deploying capital for green community infrastructure”). Grant awardees, initially selected in April, will now see money disbursed before the Sept. 30 deadline put in place by the IRA.
Calling the tasks ahead “good challenges,” Climate United CEO Beth Bafford said grant recipients, including Climate United, were “rapidly coordinating partnerships across sectors, bringing communities and capital providers together in new ways,” and fielding requests from businesses, communities and individuals “looking to take advantage of this once-in-a-lifetime opportunity.”
With those stakeholders, she added, “We will need to be very clear about the timelines for accessing capital and the unique aspects of working with federal funds.”
‘Massive market coordination’
As the US’s largest climate-friendly financing initiative in a generation, the GGRF aims to create a well-functioning green economy that will boost low-income and historically marginalized communities. There are plenty of opportunities for private investors to play a major role (see, “EPA seeks ways to mobilize private capital as it races to beef up green banking”).
Money now flowing out the door is giving way to planning and logistics. Halfaker said that the “massive market coordination required to coach and develop new green products for sub-grantees may require more front-end training and underwriting guidance for the community lenders themselves.” Awardees under the GGRF’s National Clean Investment Fund prong “have the advantage of making direct loans and now shift to mobilizing broad project pipelines,” she added (see, “How the IRA’s ‘direct pay’ option can create wealth and resilience in underserved communities”).
Mobilizing capital
Community lenders could face particular challenges.
Halfaker said that there are “limits to how much technical assistance and working capital (if any) these community lenders can provide.” As such, she added, “identifying teaming opportunities and creating more transparency around these additive capital products will be essential for the deals to go through at a meaningful scale.”
Kirkwood said that now was go time for game plans. “It’s really now at the stage to bring that set of coalition partners back together and start really designing strategies with them so that they can be as effective lenders as they can be.”
The list
The awards under the $14 billion National Clean Investment Fund to establish national clean financing institutions providing affordable financing for clean technology projects nationwide:
- Climate United Fund received nearly $7 billion to distribute through a national nonprofit coalition led by Calvert Impact, Community Preservation Corporation and Self-Help.
- Coalition for Green Capital, which received $5 billion, plans to launch a national “green bank” that will coordinate with state green banks — quasi-governmental and nonprofit lenders that use public dollars to draw private capital to the clean energy space.
- Power Forward Communities will distribute $2 billion through a coalition of housing, climate and community investment groups, including Rewiring America, that is dedicated to decarbonizing and transforming American housing stock to save homeowners and renters money and reinvest in communities.
Five groups split the awards under the $6 billion Clean Communities Investment Accelerator, including Opportunity Finance Network ($2.9 billion); Inclusiv, a CFDI, ($1.87 billion); Justice Climate Fund ($940 million), Appalachian Community Capital, a CFDI intermediary ($500 million) and Native CDFI Network ($400 million).
The $7 billion Solar for All program to create new or expand existing low-income solar programs for more than 900,000 households in low-income and disadvantaged communities has 60 grant recipients consisting of state agencies and governments and multi-state coalitions. Grants range in size from $25.1 million for the Hopi Utilities Corporation in Arizona to $249.8 million for the New York State Energy Research and Development Authority.
Roadmap
The GGRF’s substantial reporting requirements would benefit from what Milken Institute’s Halfaker called “coordinated standards for underwriting and product design” (see, “GGRF will require lots of reporting. Tech, clarity, and collaboration can help”). Halfaker said such standardization can help ensure that “the entire market benefits from the opportunity to reach the secondary markets and increase transparency around capital opportunities for developers who may span multiple jurisdictions.”
Despite the hurdles, the release of funds “is a game-changer, particularly for low-income and disadvantaged communities,” Tim Mayopoulos, CEO of Power Forward Communities and a former head of Fannie Mae, said Friday.
Roodgally Senatus contributed additional reporting.
