WASHINGTON - The Council of Development Finance Agencies and the Clean Energy Group have teamed up to create a partnership to help boost clean energy investment through municipal bond financing.
The Clean Energy and Bond Finance Initiative aims to increase bond financing for clean energy and efficiency by an additional $5 billion to $20 billion over the next five years.
"We think these numbers are ambitious but achievable; of course, we cannot control investment and the markets are unpredictable, but such a goal would be the prime mover behind the project," the groups wrote in a 24-page report released Wednesday. This is the first partnership between clean energy funders and development finance agencies at the national or regional level. The recommendations in the report are the result of a yearlong study and collaboration between the groups.
The CDFA and the CEG also formed a task force comprised of approximately 50 public and private clean energy representatives along with bond finance industry experts to augment the work of the initiative. It aims to fill the clean energy investment gap between state and local finance partners and federal government funding.
"States have been the leaders in clean energy project support for the last decade," said Lewis Milford, the founder and chief executive of Clean Energy Group. "Now, state clean energy leaders and bond authorities have agreed to work together to solve the next decade's clean energy problem."
The report found that sustained and growing federal financial support for clean energy is waning and other financing options should be pursued, such as through state and local governments. One reason funding for clean energy has dwindled is due to a handful of expired or expiring federal tax credits, which are the primary tool for clean energy finance.
Available tax equity financing has dropped to just over $1.2 billion in 2009 from $6.1 billion in 2007, the report said. The decline is exacerbated by the expiration of the American Recovery and Reinvestment Act. ARRA had been the largest stimulus program for clean energy in American history, with about $64.6 billion from 2008 to 2012, including $3.2 billion in energy-efficiency block grant funding for municipalities, the report said.
"For clean energy, the country is facing a financing perfect storm at the federal level, a funding cliff of historic proportions," the report said. 'It is no understatement to call this situation a crisis for the industry."
Due to concerns about investing in the municipal bond market in light of recent government bankruptcies, the initiative will seek the issuance of private-activity revenue bonds instead of general obligation bonds backed by the full faith and credit of a state or municipality.
As part of its action plan, the task force will identify opportunities for and barriers to issuing bonds for clean energy development. They plan to analyze federal and state finance initiatives that would increase capital to the sector to determine which are the most viable in terms of political and financial feasibility. The task force will also create pilot partnerships that finance projects in multiple sectors in six to eight states. It also plans to establish public-private partnership models that finance clean energy.
"Development finance agencies with bond-issuance authority know how to fund large infrastructure projects and are ready to tackle clean energy finance," said Toby Rittner, CEO of the CDFA. "Bonds can be the tool that makes clean energy finance attractive to underwriters, pension funds and institutional investors."
The initiative plans to improve the use of existing development finance tools and take advantage of low interest rates to use taxable bonds for clean energy. Taxable bonds are likely to be the major source of bond financing for clean energy in the next few years, the report said.
Two programs, qualified energy conservation bonds and new clean renewable energy bonds, have been underutilized but could provide a quick way to accelerate the use of public financing for clean energy development, the report said.
Last month, the Treasury Department issued guidance to attempt to jump-start issuance of the taxable QECBs. Of the total $3.2 billion of QECBs authorized by Congress in 2008 and 2009, only about $670 million had been issued as of May due to a lack of clarity in the legislation.
A QECB is taxable security and can be issued either as a bond for which an investor gets a tax credit or as a direct-pay bond in which the issuer would receive subsidy payments from the federal government equal to 70% of interest costs.
Congress authorized $2.4 billion of taxable CREBs in 2008 and 2009. They allowed issuers to receive a subsidy payment from the federal government equal to 70% of the interest costs.
The groups also suggested improving conditions for issuing industrial development bonds as a way to boost clean energy investment. IDBs are the primary finance tool for small to medium-sized manufactures but have seen a decline in issuance over the past decade due to restrictions on project size, the report said.
"If we are successful, a greater reliance on existing institutions like public bonding authorities will pave a new way to finance clean energy," they wrote.
