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Connecticut Green Bank 2017: In Pursuit of Institutional Legitimacy

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Yale School of Management
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On July 12, 2017, the Harvard Kennedy School of Government bestowed the prestigious Ash award in policy innovation, the "Nobel of policy," upon the Connecticut Green Bank for its role in "sparking the green bank movement." The Green Bank used financial structuring to attract private capital to clean energy projects in Connecticut.

Using transaction enablers and risk mitigants like loan loss reserve funds, interest rate buy-downs, subordinated debt, or warehousing facilities, the Green Bank lowered the cost of capital for consumers and businesses to install energy efficiency upgrades and renewable technology. It supported the banking industry in offering standardized products for consumers, and derisked larger stand-alone transactions.

But back in Connecticut, trouble was brewing. A contingent of leaders in the State House were calling for both a raid of the organization’s balance sheet, and a dramatic reallocation in its funding streams. After several months of intense political negotiations, on October 26, legislators swept $16.3 million annually from the Connecticut Green Bank’s budget over the following two years. In 2017, nearly 90% of the Connecticut Green Bank's operating funds came from public sources. How then could the Green Bank, whose mission rested on building trust, both insulate itself from the political winds from the north, and move toward a more sustainable funding model?

The bank’s management team needed to carefully consider how different funding structures would impact their mission to accelerate private investment in clean energy, create Connecticut jobs, promote energy security, and address climate change. Further, changes to funding, structure, and products could all affect the "inclusive prosperity" goals that the executive team held dear. How could a sustainable model still serve all Connecticut residents, including distressed communities? Should the Connecticut Green Bank rethink how they approached interest-setting?

If profitable parts of the organization could support those that would never make sense on a pure financial basis, should they be kept on the balance sheet? And if so for how long? What were the political, economic, and climate risks and opportunities of a slower transition?

And what trade-offs existed between goals of demonstrating the performance of clean energy finance assets to the private sector, supplying as much capital to the market as possible, and alleviating energy poverty for low and moderate-income residents?

Published Date: 19/05/2018

Suggested Citation: Vero Bourg-Meyer, Stuart DeCew, Ben Bovarnick, Chris Woodington, Ellen Abramowitz, Karthik Soora, Leah Yablonka, Scott Schwartz, Sydney Hanson, Thuy Phung, Vincent Tenorio, Richard Kauffman, Jacob Thomas, Todd Cort, and Daniel Esty, "Connecticut Green Bank 2017: In Pursuit of Institutional Legitimacy," Yale SOM Case 18-016, May 9, 2018

Keywords: Development Bank, Clean Energy, Solar, Low and Moderate-Income, LMI, Subsidy, Loan, Lease, PPA, Power Purchase Agreement, Climate Finance, Public Funding, Wholesale Banking, CEDA, RGGI, REC, SHREC, RSIP, Risk Mitigant, IR Buy-Down, Green Capital