Last week, the Coalition for Green Capital announced two direct deals totaling $175 million, its first deployments of the Greenhouse Gas Reduction Fund.
The financing for green building loans via Coventry Structured Investments and for electric school buses via Highland Electric Fleets showcase the green bank coalition’s approach: go big or go home.
The coalition’s original strategy was complicated by its need to reallocate resources. Reed Hundt, former FCC chairman and longtime green bank champion who leads CGC, had sought the mandate to distribute the full $14 billion from the National Clean Investment Fund, the GGRF’s green lending program. Instead, the pot was divided three ways, with CGC awarded $5 billion.
The group is now scrambling to line up more funds to build out a nationwide network of green banks and other on-the-ground partners, through which it plans to deploy $2 billion (the rest will be invested directly).
Hundt, who has announced he will step down, spoke to ImpactAlpha about CGC’s strategy, its first deals, and how he is preparing for the US presidential election.
ImpactAlpha: I wanted to talk about the deals that you just announced, but first, how’s the CEO search going to replace yourself?
Reed Hundt: Oh, that. Well, I keep telling them that I’m irreplaceable, and I keep telling them they have to rise to the challenge of proving that wrong. I’m not on the search committee, but everybody they’re talking to wants to know who’s won the election. I guess we have to wait and see, because people appreciate the job as being quite different, depending on whether the president is hostile or sympathetic.
ImpactAlpha: And on that topic, how are you feeling about things?
Hundt: I went to high school with Al Gore. That’s why I got into politics as an appointed person to begin with. So, in the year 2000, which was 24 years ago, my wife and I are in Nashville getting on an elevator to go up to the top floor to be in the family suite on election night. So when we get into the elevator, somebody yells out, “we’ve won!” The elevator goes up four floors, gets stuck. We’re in the elevator for 45 minutes, and finally the fire department shows up with crowbars and opens the door, and then we step out and somebody yells, “we’ve lost!” Finally we go upstairs. Everybody’s gloomy. Four hours later, somebody comes in and says,” no, we won!” And it goes on like this for a month. I just hope this one is over sooner.
ImpactAlpha: That’s a crazy story. As a claustrophobe, getting stuck in an elevator is my worst nightmare…
Hundt: It was horrible. There was another guy in the elevator who was a recent friend, as opposed to a ninth grade friend, and he was there because he was a huge donor. So this guy, who, unlike the people that had known the family for years like my wife and me waiting, you know, these were newbies, right? But this guy completely freaked out and began taking his clothes off, because he imagined that it was incredibly hot in the elevator. It was stuffy, but you did not have to take your clothes off. The guy is taking his clothes off. He got down to his underwear. And I’m like, this is so nuts, but at least we won. And then they opened the door and we hadn’t won, so that was 30 days, 35 days, however long it was; that’s what’s going to happen this time. I don’t think I can take it.
ImpactAlpha: I want to ask you about private capital and how we get to 7x crowding in of private capital. How do you see that working?
Hundt: We’re meeting with major, major, major, major, deep, deep, deep pockets of wealth in America to have them be partners. So there’s two kinds of private partners. One is your development partner, somebody who says, ‘I’m a community solar developer, and if you will add some junior debt, I can close the project.’ A financial partner would be somebody who says, ‘you’re going to invest a billion dollars; I’ll invest a billion along with you. I want a bigger return than you are willing to get. But you know, I’d love to have you help me find the projects.’ We want both.
ImpactAlpha: So what sort of financial partners are you talking to?
Hundt: Anybody with a lot of money! It’s a big country, but wealth is, what a surprise, concentrated, right? So there’s maybe a dozen private sector infrastructure funds that are the biggest in the country, there are maybe a dozen family offices with billionaires, there’s a handful of money center banks, so it’s not that big a number. But nobody knows what we’re about yet. You tell them, Coalition for Green Capital, and they go like, ‘Oh, is that a political movement?’ The answer is, we’re an investing firm. Yeah, we have zero cost capital. Yeah, between our needs and your needs, we ought to be able to fight a common ground.
With the appropriate prudence, we’d like to get all the money invested within 12 months.
ImpactAlpha: It’s been a few months since the EPA made the awards. How are the green banks doing? Are people feeling ready to go?
Hundt: You saw the press release. That’s the tip of the iceberg. We’ve been able to commit, subject to caveats, $175 million in just two deals. This is what we want to do: big deals. And, big deals that have all these corollaries, like this deal with Coventry. Roughly speaking, the investment will be 10 times our money. And it’s going to be all over the country. They’ve targeted California, Maryland, Rhode Island and Texas.
So that’s kind of our basic model, which is, take our money, have a big multiple with other money and try to have significant impact. This is not a grant. We’re going to get a very nice return. So the number one job, as we see it, is to have big impact. You know, a big multiple of what the EPA calls mobilization, and we just call other people’s money, OPM, right? And we need to be, we need to have it be that we strike the big deal and then it has impact at the local level, ideally through our network. We are now circulating our network partnership agreement to about two dozen of the initial candidates to be our new network members.
ImpactAlpha: What do you mean by new network members? New green banks?
Hundt: We agreed with the EPA that we would build a national network of at least one self-sustaining green bank in every state, so that’s 50 plus DC. So we would need 51 minimum. And you know, some states are really big, so you would probably want more than one in those states. So probably fully realized it would be around, around 100 to around 150 members. You’re basically building a distribution network. You’re distributing money, you’re distributing deals. And that’s what we committed to do, and that’s what we have commenced. And like I said, we’ve sent out the partnership agreements to about two dozen and and then right after the election, we will ask all the governors, all the people in the Senate, if they have any suggestions for who in their state we should be working with, and then we’ll have a coalition of the willing.
ImpactAlpha: Well, worst case [election] scenario, the state and local level will still be ready to go, right?
Hundt: Oh yeah. Take, let’s take this Coventry deal, which is something that we obviously put in the [letter of intent]. Coventry itself wants to have these C-PACE loans be not to big businesses, but to small businesses. The ‘C’ in C-PACE stands for commercial, so the loans will be to businesses, not residences. And they will be happy to have a local network financier. And we would like to have one in the state, or more than one in the state where they’re making the C-PACE loans available. So another way to say it, more simply, is if we have a green bank in Kentucky and Coventry wants to make a C-PACE loan in Kentucky, we just say to Coventry ‘here, work with our network member in Kentucky.’ We created a business opportunity for the network member.
ImpactAlpha: How would that work in practice? Coventry has the credit line and would be making the C-PACE loan. What would the local green bank be doing?
Hundt: Well, when we say we give them a line of credit, we could also have the line of credit be extended by the local green bank. It doesn’t need to be that it comes straight from our balance sheet. Now, the reason we wrote the line of credit is we don’t have a local green bank yet because we haven’t built the network yet, but if it existed, we probably would write the final agreement, because this is an LOI, in the way that I just described to you.
ImpactAlpha: You had put in for a bigger chunk than $5 billion CGC was awarded. Does that give you enough resources to work with?
Hundt: For that big network that we have to get, we have to get more money. The way we were going to build this national network is, we requested $1.7 billion under the CCIA [Clean Communities Investment Accelerator] program, and we were going to divide that into the maximum amounts of capital that the EPA was going to permit, which was $10 million. So that would give us 170 members of the network. But they didn’t give us any money, even though we scored number three, so now we have to find a different way to achieve the same goal.
So we’re talking to the other CCIA winners about partnering, because we totally believe that the network is the ideal way to distribute capital and create opportunities at the end user level. The network is not the way to negotiate with a Coventry. So that’s a national negotiation, you know, where we’re committing the $100 million they’re talking about how they will invest a total of $1 billion. So you have this national agreement, and then it can be applied locally. That’s our concept.
And the other deal, the Highland electric fleece deal, that’s the same thing, meaning that deal involves probably 1,300 vehicles. Well, there’s no school district that is going to say, I want 1,300 electric school buses, or not very many like that ready. So the ultimate outcome there is a whole bunch of small deals. So we have the big national deal with Highland, and then that will translate to something like seven different states. So you do the national deal and the impact is distributed in many different states, and there, again, if in every one of those states we had, by the time this thing is put into place, a local or state level Green bank will, then we would bring them into the transaction.
ImpactAlpha: So these are your first two direct deals. CGC also allocated $100 million to Elemental Impact in September. How do you think about that one versus these deals?
Hundt: We have what I would call an agreement to agree, but it depends on the EPA doing something that they haven’t quite done, but they are on the verge of doing, which is they need to take the entire $5 billion and put it into an account at Citi — that’s called the financial agent agreement, which I expect to be signing possibly today. But until they do that Elemental and we everybody else, we’re talking about a hypothetical.
ImpactAlpha: So many little details that have to be hammered out…
Hundt: You can say that again. God is in the details. So the detail there is when that money is put at the financial agent, which happens to be Citi, and we sign our agreement, then there will be an account In the name of Elemental at the agent.
ImpactAlpha: I would imagine you’ll be doing more of those sorts of deals with your sub-awardees.
Hundt: All the sub awardees have been presented with the contract, and then they have to read it, the fine print, which is very important because it’s all about managing a lot of money. Remember that all the sub-awardees, they stand in our shoes, meaning they have to perform all the duties that we promised EPA that we would perform. They can’t do their own thing. The EPA, in its wisdom, wrote about 40 pages of terms and conditions. So all of that, like it or not, gets imposed on the sub-awardees as well. It’s like if you were a Starbucks distributor and you had to agree to make the coffee just exactly the same way that Howard Schultz told you to, right?
ImpactAlpha: Do you think all the green banks feel like they can participate? We had heard about some new ones that were cropping up and finding they need more support.
Hundt: Well, I don’t know. So the American Green Bank consortium is getting redone, and it’s going to be, I guess we have to think of a name for it, but I think of it as the new American Green Bank Consortium. The core group is going to be the sub-awardees, because they’re the ones where we know we can get the money. Who else should be in it? The answer is, we didn’t win the CCIA money, so we don’t have a $1.7 billion to offer the ‘who else’ category. So, so honestly, we’re feeling our way to figuring out how many we can economically support. And also we’re waiting for the election. After the election, we want to touch base with all the senators and all the governors and ask whether they have any preference.
So, let’s go back to the beginning of time. You know when we committed as a nonprofit to set up the Connecticut Green Bank, our first step was to talk to the governor, Dan Malloy, who had just been elected. Dan Esty, who was taking a leave of absence from the Yale Law School, Dan and I talked to a governor. The governor said, ‘Yeah, I want to do this. You work it out.’ And with Dan Esty in the lead, we got legislation passed in the legislature and got the first appropriation. So if you can get the legislature to add more money, then you’re solving the problem of, how do you get more money.
Overall? We need more money. We need a lot more.
ImpactAlpha: How much impact will the election have? What’s at stake? And do you have contingency plans?
Hundt: We’re going to do step one regardless of who wins the election, which is, we’re going to talk to every senator, incumbent or elected, we’re going to talk to every governor, no matter who it is. Two thirds of all the emissions in the country come from red states. You can’t be in the business of having a clean power platform only in Democratic states. The United States as a whole, along with China, is the biggest emitter in the world. So we need a national solution.
And a national solution means that most of the investment and most of the change has to occur in Red states. That’s our self appointed mission. That’s our goal. And maybe some other award winners are thinking of things in a more regional way. Not us. We are national.
ImpactAlpha: Okay, so that is going to happen regardless of who wins, but are there other differences in how you’ll move forward?
Hundt: Well, you know, I would be foolish to say, because I simply have no idea. If a political party populated by critics of the government supporting clean power, if that’s the political party that owns the White House or the House or the Senate, I don’t know how dramatic or extensive their actions would actually be. So I have to say I just don’t know. But I will say that there is no lawful way to get the money back, and any attempt to get the money back would be a violation of the Fifth Amendment of the Constitution as a takings.
It’s not something we’re just doing because of the election. It’s what we’ve been doing for 15 years.
