Massachusetts and New Jersey are spearheading clean energy financing programs that also address the need for climate resilience. Both of these programs appear to be partially motivated by the devastation of Hurricane Sandy. The United Nations combines these two funding pools already, but within the United States, this is a new development at both federal and state levels.
“I don’t need to remind anyone about the natural disasters we’ve experienced,” said Mark Sylvia, commissioner of the Massachusetts Department of Energy Resources, at the Pace + Resiliency Symposium hosted by the United States Green Building Council (USGBC) on Feb. 24 in Boston. “Everything we do is now focused on climate adaptation.”
The two states are taking very different approaches to combining these financing pools. They are also prioritizing different sectors.
Massachusetts is considering legislation that would create a property-assessed clean energy (PACE) loan program including energy efficiency, renewable energy and resilience funding. This program would draw on funding from private investors and would focus on commercial and industrial properties.
Property-assessed clean energy programs offer property owners bond-funded loans for energy efficiency and/or renewable energy projects. Property owners repay these loans through assessments on their property tax bills.
New Jersey has proposed to draw on funding from the United States Department of Housing and Urban Development (HUD) to set up an energy resilience bank that would fund retrofits of critical infrastructure such as hospitals, public transit facilities, prisons, wastewater treatment plants, and other places where it is a high priority to keep the lights on during natural disasters.
The USGBC panel presenters said the outcome will depend on the progress of Senate Bill 177, which has been introduced by Sen. Brian Joyce (D-Milton). It will also depend on the effectiveness of Mass Development’s outreach to private markets. A previous PACE bill that was passed in the state did not require mortgage lenders to consent to the program and was therefore ineffective, said Richard Sullivan, secretary of energy and environmental affairs.
“We’re really pleased that Senator Joyce has included in the legislation a component for resiliency,” said Sylvia.
“We can work to develop the market and the demand,” said Laura Canter, director of financing programs at Mass Development. Her goal is to reach capital markets and help to build an asset class, she said. Mass Development plans to issue bonds to support the program.
“The reason why cash doesn’t flow, why investments don’t flow to opportunities, is that the lender or investor doesn’t accept it,” said Dave Carey, principal of Harcourt, Brown & Carey, the consulting firm that evaluated the PACE legislation. “The capital markets are absolutely flush with capital. They would love PACE. It’s extraordinarily secure.”
The state hired Harcourt, Brown & Carey to produce a report on what would make PACE effective in Massachusetts after legislators recommended that an earlier version of the bill receive more thorough consideration, Sullivan said.
“Massachusetts has the opportunity to create the best program in the country right now,” Carey said. He said this is because the state has a good balance between government policy and private industry financing.
However, it appears that the energy efficiency and renewable energy portions of the program are financially stronger than the resilience portion of the program. This is because energy efficiency and renewable energy measures save money and help to repay their investors, while other resilience measures such as flood-proofing may not generate revenue.
Carey said backup power is an example of an important resilience technology that does not provide immediate payback.
During Hurricane Sandy, New Jersey faced severe and long-term electrical outages. This led to wastewater treatment plants shutting down and flood waters overflowing. Hospitals, shelters, schools, and public transportation were all threatened.
The state has identified close to 800 energy resilience projects which communities could carry out to prepare for future hazards related to climate change. The National Renewable Energy Laboratory helped to analyze facilities throughout the state and make recommendations.
New Jersey has now allocated $25 million of Federal Emergency Management Agency funding for energy resilience projects, but is interested in finding larger sources of capital.
To address these needs, the governor’s office released an Action Plan Amendment for public comment on January 29. The plan outlines an energy resilience bank that the state government proposes to create.
The governor’s office proposes funding this bank with $210 million in HUD funds initially. The bank could be scaled up by using private-sector financing to multiply its seed funding.
This energy resilience bank would use Community Development Block Grant Disaster Recovery Assistance program funds from HUD to fund energy efficiency and distributed generation technologies at critical locations throughout the state.
The funding would not be available to residential, commercial or industrial property owners. It is specifically directed to be used for critical facilities that would cause community safety issues if they lost power. For example, public transit stations, hospitals, colleges, high schools, water treatment plants, public housing facilities, and correctional institutions might receive this funding.
Mary Barber, director of the New Jersey Smart Power program at Environmental Defense Fund (EDF), said that to retrofit New Jersey’s hospitals, which are privately owned, the state would have to ask for a waiver from HUD.
This program would be less expansive in its definition than the Massachusetts program would be. The projects would all be at the intersection of energy and resilience, so the funding would not cover projects that are only energy-related or are only resilience-related. Projects would be required to meet resilience performance standards.
“From a resilience perspective, we definitely want to see more distributed generation like solar, geothermal and fuel cells,” Barber said. She said EDF thinks it is very positive to develop the bank. “We are hopeful that the structure of the bank will allow for the inclusion of private capital and will also include non-public facilities.”
Disclaimer: Dave Carey is a member of the advisory board of the Clean Energy Finance Forum.
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