Michigan Green Bank Could Attract Billions in Clean Energy Investment

, energy analyst | March 16, 2016, 9:27 am EST
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As the nation continues its transition to a clean, sustainable energy sector, innovative financing programs are one way that states are attracting significant private investment in clean energy resources.

A new analysis from the Union of Concerned Scientists shows why: by smartly using modest public investments, billions in private capital can be leveraged to drive significant growth in renewable energy and energy efficiency. Our analysis shows that an initial investment of $105 million in Michigan could leverage more than $3 billion (yes, with a “b”) in clean energy investments through 2030. These investments can be directed where they’re needed most, help the state comply with its Clean Power Plan (CPP) obligations, and jump-start the financial sector’s interest in clean energy as a sound investment.

By smartly using public funds to leverage private capital, a Michigan green bank program could drive significant investment in energy efficiency and renewable energy.

By smartly using public funds to leverage private capital, a Michigan green bank program could drive significant investment in energy efficiency and renewable energy.

Successful programs from Connecticut to Kentucky

Green banks are state-funded financial institutions that use a pool of public funds and a suite of financial tools to attract a larger pool of private investments in clean energy projects. UCS analyzed the potential outcome of creating a green bank in Michigan, based on the state-specific data and experiences of existing green banks and clean energy lending programs in other states and countries.

We started our analysis by first conducting a survey of the landscape—identifying similar programs in other states and countries and then digging further into how they’re structured and the success they’re having at attracting private capital to fund clean energy projects. Our review found several programs—from Connecticut to Kentucky to Germany—that are scaling up clean energy investments without direct subsidies.

This review also gave us the details necessary to then assess how a similar program might perform in Michigan—a state with a long history of successfully attracting private investments with public financing programs.

Smartly using public investment to drive the private sector

Creating a green bank in Michigan could leverage $105 million in public funds into $3.3 billion in investments in renewable energy and energy efficiency over the next 15 years.

By using the initial $105 million as a revolving loan program—which uses loan repayments to make additional loans year over year—the state can lend out almost $400 million in funds over the next 15 years. And by attracting $7.50 in private funding for every public dollar invested (based on an average of programs in other states), the green bank program can attract $2.9 billion in private capital. In an era where states need to find cost-effective ways to reduce carbon pollution, a green banks structure offers significant potential.

Clean energy investments under a Michigan green bank program

With an initial capitalization of $105 million, Michigan could leverage $3.3 billion in capital investments in renewable energy and energy efficiency.

With an initial capitalization of $105 million, Michigan could leverage $3.3 billion in capital investments in renewable energy and energy efficiency.

In addition to attracting $2.9 billion in private investment, a green bank in Michigan could:

  • Support the deployment of 685 megawatts (MW) of new solar power
  • Save homes and businesses $322 million on their annual electricity bills due to energy efficiency investments
  • Reduce Michigan’s carbon emissions by 3.9 million tons per year—or 13 percent of the emission reductions that Michigan must achieve to comply with the Clean Power Plan.

Energy impact of clean energy investments made through a Michigan green bank program

Energy efficiency and solar investments under a Michigan green banks program could save or generate 3,700 gigawatt-hours of electricity - equivalent to 3.25 percent of Michigan's 2013 electricity sales.

Energy efficiency and solar investments under a Michigan green banks program could save or generate 3,700 gigawatt-hours of electricity – equivalent to 3.25 percent of Michigan’s 2013 electricity sales.

Programs like a green bank—or other innovative financing assistance programs—are also a great way to provide technical assistance and assurances to financing institutions. This helps reduce the perceived risk of clean energy investments, making financing less costly. Further, a green bank structure also allows the state to direct investments where they’re needed most, like disadvantaged communities or those particularly hard-hit by the transition from coal.

Significant changes in Michigan’s electricity sector are underway, and states will need to be more engaged and more creative in finding cost-effective ways to achieve the transition to a modern, sustainable electricity system.

A Michigan green bank would be a smart way to attract investments in clean energy resources, build Michigan’s clean energy industries, and direct resources to where investments are needed most. It’s another win-win in our transition to a clean, sustainable, and affordable energy future.

 

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