Ep. 6: Bryan Garcia, CEO of Connecticut Green Bank

SEASON 1 EPISODE 6

[INTRODUCTION]

[00:00:07] ANNOUNCER: This is Financial Climate. Can innovations in finance help the world decarbonize? How can trillions of dollars of assets be redirected to catalyze a net zero economy? We explore these questions through conversations with innovators, experts and investors from around the world. Here's your host, Alex Roth. 

[INTERVIEW]

[00:00:33] AR: I've always loved the term green bank. The term green suggests ecological harmony pursued in the public interest. But it's combined incongruously with the word bank, which suggests all the competence, and resources and power of the establishment. The thing is that even though the idea of green banks has been circulating for a number of years, the term is still somewhat amorphous. 

Green banks are also still relatively rare and in the very early stages of development. But as attention to climate change has grown, so has hope for the role of green banks. In the Inflation Reduction Act, for the first time, congress has appropriated billions of dollars for the development of green banks. 

Bryan Garcia is the CEO of Connecticut Green Bank. It's one of the oldest and most successful of the green banks and green bank-like organizations in the United States. For years, Bryan has also advocated nationally for green banks. And he sits on the board of the coalition for Green Capital. 

I sat down with him to learn more about Connecticut Green Bank. I wanted to know what his green bank is already accomplishing and how his team uses the tools of innovative finance to fight climate change. I also wanted to learn about broader opportunities for green banks to grow and proliferate nationally. 

Here's our conversation. A quick note to listeners. Due to a technical glitch, you'll notice that the recording quality of this interview is not up to our usual standards. I think you'll find the interview is more than interesting enough to make up for the quality. As with all our episodes, you can find a complete transcript on our website, http://www.financialclimate.fm. 

Bryan Garcia, welcome to Financial Climate. I want to get to all the things you're doing specifically with the Connecticut Green Bank. But before we do that, the term green bank means different things to different people. Generally, when people talk about green banks, they're not talking about a bank in the same way that, for example, Bank of America is literally a bank that takes deposits or things like that. Just generically, how do you think about what a green bank is? 

[00:02:56] BG: That's a good question, because actually in our early days of being created through an active legislation in Connecticut, the banking regulators asked that same question of us. And it's not like we are a depository institution, to your point, where people come in and make deposits into their savings account, checkings account. We're more like a food bank than an actual commercial bank in that we have a social mission. 

When we were created back in July of 2011, we were actually called the Connecticut Clean Energy Finance and Investment Authority. And that didn't naturally roll off the tongue. Our legislature actually went back at it and changed our name to the Connecticut Green Bank. But we did have to answer those kind of regulatory questions of, "Are you really a bank? Or what are you?" 

Yeah. We're more like a food bank than a commercial bank in that we provide to families and businesses the capital they need to finance clean energy improvements. We're very socially and mission-driven like a food bank as opposed to a commercial bank. 

[00:04:01] AR: I know that at the Connecticut Green Bank you have a number of different programs or offerings that you provide to the public in different ways. And so, it'd be nice to talk about some of those individually. But maybe one place to start would be with one of your programs, which is called the Smart-E Loans. Can you explain what that is and how it works? 

[00:04:20] BG: Yeah. We have a number of different programs that provide families and businesses with the capital they need to finance clean energy improvements. One of our flagship products is actually called the Smart-E Loan. It's a program where we provide a second loan loss reserve to our community bank, credit union partners. We provide them a loss reserve, a second loss reserve. 

So, the first 1.5% of losses they take as a financial institution. That's pretty typical of commercial lenders to expect a 1.5% loss. And then we take the next 7.5% of losses through this second loan loss reserve. We've looked at all the data, and all the data tells us that people who take out energy loans typically repay them. They have usually less than a 1% loss rate. 

We designed the program to allow the local lending industry to do what they do best to underwrite transactions. But what we want them to do is to underwrite those transactions affordably. That's to say, keep the interest rates low because we, as a green bank, are going to bear the risk of that second loss. 

And then secondly, make sure that the terms that they're underwriting to, these are unsecured loans. Make sure that you provide to borrowers the ability to go longer term. Typically, local lenders will provide unsecured loans up to five years, seven years maybe. But we wanted to get them out to 10, 12, 15, 20 years to the useful life of all these clean energy measures. We designed the Smart-E Loan program to really support the clean energy policies of the state. Connecticut has a comprehensive energy strategy. And the commissioner requested. He said, "Yes, we want an energy loan program out there that can not only do your weatherization stuff, your insulation in the attics and in the walls. But we also want to make sure that those EMERGY STAR windows also get installed. 

As we all know, in the energy industry, that weatherization insulation stuff pays back really quickly. But it's those ENERGY STAR windows that have a much longer-term payback. To the extent, we can have the repayment of those loans over a longer term, the more energy savings, the more cash in families’ pockets can happen by paying a lower monthly debt service payment by spreading those payments out over a longer period of time. 

The Smart-E was our flagship product of the Connecticut Green Bank. We've, to date, provided about 6,500 families, indirectly, loans through these local lenders. And they have loaned out over a hundred and ten million dollars of loans. And we've had to pay about three hundred thousand dollars in losses. For us, this is all about aligning the local lending institutions and industry to supporting the public policy objectives of the state of Connecticut, which is deploy more clean energy, create jobs in our communities, reduce energy burden on families, confront climate change. The more we can do to get them providing their capital in to help government solve these problems and deliver people real benefits, that's what we were after. The Smart-E Loan definitely does that. 

And it's still chugging along to today. Doing very well. In fact, last year, our scope was expanded at the Connecticut Green Bank beyond clean energy to include environmental infrastructure. What that means is that we're now trying to figure out how we can apply the green bank model to land conservation, agriculture, parks and recreation, waste and recycling, water. You name it. Climate adaptation and resiliency. 

We are expecting to evolve the smarty loan to get our local lenders to help provide those families with the resources they need to help finance some of those environmental infrastructure improvements. The Smart-E Loan program has proved to us that local lenders can do what they do best. We can enable them to support our clean energy and climate change policies. And looking ahead, environmental infrastructures on the docket. We fully expect to see more lending to improve the climate resiliency of homes because we are all feeling the burden of climate change. 

[00:08:55] AR: Well, that's great. And so, some of those new programs would be through a different structure possibly than the Smart-E Loans? Or are you talking about just adding to that in terms of what types of projects could be done? 

[00:09:06] BG: Just trying to keep it simple. I think what we're going to try to do is to keep the existing structure with our local community banks and credit unions and just say here's a whole new set of measures that we would like the Smart-E Loan to be able to finance. You do the underwriting of the loans. We will do the technical assessment of the different measures. Lean on us to determine whether or not those measures kind of lean into the state's energy and environmental policies. 

Yeah, we fully expect it to be a simple expansion of scope. All the terms being kept the same. Except now, allowing families to be able to borrow to support environmental infrastructure types of projects. And it could be things like a hurricane resilient roof. It could be things like rain barrels, a new septic tank, a new well. You could imagine a lot of things that everyday families rely on or lean on and maybe in a pinch to replace can now use the Smart-E loan as a vehicle to get those measures done. 

[00:10:11] AR: That's great. And just to be clear, that means then that you're not actually having to hold those loans on your balance sheet. So, that saves your capital to make as many loans as possible and keeps you out of some of the business that you want to be out of considering that you're not considered a regulated bank and don't have deposits to cover those things. Is that right? 

[00:10:28] BG: That's right. Yeah, it keeps them doing what they do and keeps us doing what we do, which is to just align their interest to our public policy objectives. The loan loss reserve will still sit on our balance sheet and it will grow as more and more loans are done. But knock on wood, as we know from the data, at least on the energy side, the clean energy side, that people will pay their bills. And we've seen the result of that not only in the research but in practice with regards to these clean energy measures. 

I think the outstanding question becomes will they look at environmental infrastructure measures in the same light as they do energy, right? I think there's this common perception out there that if I'm not paying my energy loan, will somebody shut me off, right? So, you don't want to be shut off. I don't know if that's an underlying reason as to why people are paying their energy efficiency loans. 

The DOE did a really great study on the performance of energy efficiency loan programs. Just across the board, it signals really strong performance in terms of repayment. We'd like to see more and more community development financial institutions, credit unions, community banks doing this type of lending to help families improve their homes by doing more clean energy measures. Really excited to see it. 

[00:11:46] AR: That's great. And my understanding is you also have a residential solar program that is separate from the Smart-E Loan program. Is that right? And can you tell us a bit about it? 

[00:11:56] BG: That's right. We're actually just wrapping up that program now. Back in July of 2011, when we were created, there was another part of Public Act 1180. Section 99 was the creation of the Connecticut Green Bank. I remember that very vividly. I live that every day. But Section 105 created the Residential Solar Investment Program, which was a declining incentive block program to support new residential solar on Connecticut homes. And the legislature wanted the Connecticut Green Bank to implement that program. 

We've been at that now for over 10 years. The target was to achieve a 350-megawatt deployment target by the end of 2022. We are able to achieve about 370 megawatts ahead of that 2022 schedule. And I would argue that we did it at very low incentive levels, which is to say that, over time, we worked really hard to make the market less and less reliant on the need for government subsidy in order for it to be sustained over time without needing that incentive or subsidy. 

Connecticut, our program, is the largest watts per capita in the entire Northeast. If you look at us – I think a lot of times you look at these studies and you see your big States; California, Massachusetts, New York, Arizona. And they rank them based on deployment. Well, okay. Of course, you've got a lot of land area, a lot of sun. You're going to be a leader. You've got a large population. You're going to be a leader. 

If you actually crunch the data and you look at per capita deployment in the residential sector in the entire Northeast, New England, New York, New Jersey, Connecticut has the highest watts per capita for residential rooftop solar. We're excited by that. 

And we saw initially in around 2014, we started to see the green bank model because we applied a number – we developed a number of financing programs, loan programs, lease programs to put capital in the hands of families who wanted to reduce their energy burden by installing rooftop solar. We started to see the dramatic increase in deployment and investment in rooftop solar. But we weren't asking ourselves the right question, which was, "Who's benefiting from this investment and deployment?" 

We worked with the University of Connecticut's Economic Center, the Economic Policy Center, and they did a study that looked at income where these projects were being deployed based on the income and census tracts. And what it showed was that we were leaving large swaths of income behind. Meaning our low to moderate income families. Low-income families, less than 60%. Area median income, moderate income. Sometimes people consider 60% to 100% moderate income. We broke down all the data. And the data showed us that less than 100% AMI were completely being left behind in this investment and deployment of solar. 

Our board in late 2014 said it's all well and good that we're seeing investment happen in the deployment of residential solar. Helping those families reduce the burden of energy costs and reduce greenhouse gas emissions. But it's completely unacceptable that we're leaving behind a whole segment of our population. 

What did we do from there? We ended up kind of taking a step back. And on that incentive program, we ended up providing a two and a half times incentive for low-income families that demonstrated need. If you were a family that had snap grants or other forms of state or federal assistance, then you would have access to an incentive that was two and a half times. We created that incentive to do that. 

We also did research. We wanted to understand why the private markets weren't serving low-income families. Because, one, if you look at the credit scores of low-income families, the common bias is that you assume, because someone's low income, that they have poor credit. That's not the case actually. The data told us in Connecticut that even though you might be low income, you can still have really good credit. Income and credit aren't correlated in Connecticut. We shared that research with all of our contractors and third-party owners. And still, between that and the doubling of the incentive, that still didn't get them moving into this direction. So, we said, "Okay, why don't we issue a competitive RFP, which we still have open to this day?" And the green bank will provide our capital into the structure of a third party owner to get them to focus on providing financing to low-income families. 

As a result of that, we found a company called Posigen from New Orleans, Louisiana. We brought them up to Connecticut. Surrounded them with a lot of private investment from investors in the state who were senior to the green bank. We kind of put our capital in on a subordinated basis and said to all these other investors, "We're willing to take the risk. But we got to get your private capital in to supporting Posigen's growth and development here in the state of Connecticut." 

And now, Posigen is among the top five deployers of residential solar in Connecticut. And their focus is vulnerable communities, low-income families, Black and Hispanic families. Connecticut is now a Solar with Justice state. As I mentioned, we just hit our 370-megawatt target. You know, above the 350. But along with that, we're now also a Solar with Justice state, which means that our vulnerable communities are demanding solar on par with non-vulnerable communities in Connecticut. And we have a statutory definition for vulnerable communities, which includes those low to moderate income families, environmental justice communities. 

By us taking a really active role in providing green bank capital to a private business, and we're open for any business that's willing to support that market, we're actually enabling more capital and investment to flow to low income families and disadvantaged communities. We track the data. We actually have meters on – I think we have over 45,000 plus residential systems underneath that 370 megawatts. Every one of those systems has a meter on it. 

We have the contracts. So, we know what those homeowners are paying every month in terms of a lease rate. We know the electric rates. We track those. Between the production of that solar PV system, the monthly payment those homeowners are making and the electric rates, we could actually determine the actual energy savings of those families. 

And I could tell you that they're saving – yeah, they're saving about a thousand dollars a year for every kilowatt hour that those systems are producing in our solar for all program. On average, about 10 cents per kilowatt hour is going back into their pocket. 

And more recently, Connecticut just had – we're all experiencing this in the Northeast, rate increases. I think on the generation side, we're going to see about a 10 to 15 cent increase on the generation side of the bill. Those families now, low-income families who have installed solar, are now going to be saving 20 to 25 cents for every kilowatt hour that that solar PV system is producing. 

This is all the green bank model has been set up to do, which is to enable private capital to flow to support families and businesses. We can get into businesses, too, to help them reduce the burden of the energy costs while also creating all the benefits we want to see happen in our society, the reduction of greenhouse gas emissions and creation of jobs in their communities. 

That's what we do. I mean, green banks really are right at the forefront of enabling greenhouse gas reductions to occur while enabling investment in low-income and disadvantaged communities. 

[00:20:14] AR: That's great. And so, just to go back to one thing you were saying about on the declining block basis of that program. That means the idea is that you have a certain target of total number of that you're trying to deploy. Total number of solar systems. And then you basically give a bigger subsidy to the people at the start to get it going. And then the idea is that the price will decline over time as scale increases. And at the same time, you'll save money by not spending as much per household as you move forward towards your goal. Is that the idea? 

[00:20:45] BG: That's exactly right. If you think about a public policy objective of trying to build a market that's sustainable for solar deployment, at the early stages, you're providing more incentive, right? You're providing a spark to get that market moving. You're providing an opportunity for new businesses to be created so that they can help support those families that more and more families that want to do it. 

I think we started off at an equivalent of about an 11 cent per kilowatt hour incentive of production over a 15-year period. We ended the program at about two cents. We went from we went from 11 cents to two cents over time. And you could imagine, you set steps. You say to the market, "For the first 50 megawatts, we're going to provide an incentive of 11 cents," as an example. Okay, the market raises. And this is an important effect that you want to try to create in a market is a scarcity effect, which gets the installers to want to push towards realizing that 11 cent incentive for their customer. They're going out there. They're creating their marketing. They're driving towards 50 megawatts. Then you drop it by two cents to nine cents for the next 50 megawatts. And subsequently, you keep doing that until you get to such a point where the incentive is really nominal. 

And I would say that at the end of the program, when we got to two cents, which earlier this year, June 30th, was the last day of the program looking at two cents, that value there is less than the renewable energy credit price for Connecticut's class 1 renewable portfolio standards. 

The thought being that you didn't need the incentive anymore, but you needed some vehicle that would allow these homeowners and developers to realize that RPS value so that you can help the utilities meet their compliance requirements. That was our goal from the outset, was to try to get within range of the alternative compliance payment. This is the maximum ceiling price of a renewable portfolio standard, which in Connecticut was five and a half cents. Then it dropped to four cents. So, we ended at two cents. 

What that effectively meant is that the incentive level was half of what the ceiling price was for the class 1 RPS, which is great. Because the more local deployment we get from clean energy to meet that portfolio standard, the more economic development benefit we received by all the local contractors out and about doing these projects in our communities as opposed to buying renewable energy credits from other states in the New England region to satisfy an RPS. In this case, this was an economic development policy that is resulting in more job creation.

[00:23:38] AR: That's great. And you touched a little bit on some of the things you're doing around commercial properties. It'd be great if you could talk a bit about that as well.

[00:23:46] BG: Cool. Yeah, the green bank model applies to commercial properties as well. A couple of examples I have, one is we're also – on the residential side where we're known for the Smart-E Loan, a partnership with our local community banks and credit unions. On the commercial side, we're known for our commercial property-assessed clean energy program. Otherwise known as CPACE. 

In 2013, our legislature revised an existing CPACE statute. We were able to work with the banking industry to effectively allow for a CPACE benefit assessment to be senior to an existing mortgage on a property. But we had to have the consent of the existing mortgage holder. So, that was the balance in the agreement we reached with the industry was, "Okay, we'll allow that benefit assessment to be senior to our loans on the property because that clean energy improvement is actually going to result in a reduction of operating costs, a reduction of energy costs." We'll do that, but you have to let us consent to it first. That was the policy agreement that we reached. 

Then after that, we were waiting. I think Connecticut was probably – I don't know. 25th in the country to have a CPACE policy and nothing was happening. We're excited to see the policy there but nobody was using it and no investment was happening. 

[00:25:07] AR: And is that because the banks wouldn't consent to it or because of other reasons? 

[00:25:12] BG: I think it was because of other reasons. It's a new financial tool. Across the country, CPACE on the commercial side was really lagging. You saw it working on the residential side. There were obviously some issues that came up in California on the residential side. But on the commercial side, it just lagged. It was a complicated structure. We had to make it simpler. We had to work with our developers, our commercial clean energy developers in Connecticut, to say, "Here's another financial tool for you in your toolbox to help you help those business customers." 

We sat around. Nothing was happening. And we were like, "Okay, this is unacceptable. Why don't we demonstrate to the private markets how this can work?" So, we went out. We had conversations with lenders. We had conversations with banks and said, "If we originate a number of PACE transactions with this documentation, would you be willing to buy it off us at a future point as we aggregated all these different transactions?" And they were like, "Yes, if you thought about a contract this way, and you're able to standardize it that way and you got to a certain level of scale, then we'd be happy to buy a bond from you or take those assets off your books." We're like, "Okay. All right. Here it is. Let's go after it. All right." 

We had that. We had money in the bank. We started to promote the program. We found a few property owners who were like, "Hey, I like this. I can put this on my – make these clean energy improvements. These clean energy improvements are going to result in a reduction of my energy costs because my debt service payment on an annual basis is lower than what my energy savings would be." And in Connecticut, that's actually required by statute. The savings to investment ratio has to be greater than one. So, public policy is an underlying current that you're hearing from me, Alex, because you have to make sure that the policies are aligned with the market dynamics. 

In this case, we were able to find a handful of property owners that became our pacesetters. They became our early adopters. Demonstrated how the financing tool can work. We celebrated them. We promoted them. They were out and about talking about the program. And then all of a sudden people were like, "Oh, this PACE thing, we can do it. We can use it for our businesses, for our manufacturing companies, for our non-profits, for our affordable housing." CPACE applies to a lot of different commercial end users. So, we're off and running. 

And in 2015, we were able to aggregate about 30 million dollars in CPACE transactions. And we went back to the market and said, "Okay, we did this using our capital. But we would like to use your capital. Why doesn't somebody buy these transactions off of us and that we're able to sell off those transactions to the market?" I think, again, in the green bank kind of way, we subordinated ourselves in that structure as a credit enhancement by taking a lower series of the bonds. But we're able to recover 25 million dollars of that funding back and able to redeploy that to other things. 

CPACE has been a real important program for us. We've now got 140 of 169 Connecticut cities and towns. They have to voluntarily say, "I want into CPACE." A town has to say, "Green bank, let me in. I want my businesses, non-profits, affordable housing to be able to use CPACE to make clean energy improvements." So, you can imagine how challenging of a process that is. 

But over time, as more towns saw what businesses were doing, they began to come on board. And the reason towns have to sign on is because they are collecting the payment. It's a effectively a property tax payment that sits on the property tax bill of this building. The building will pay their taxes and they'll see their benefit assessment on their bill. 

And the reason that is important in the context of financing in CPACE is because people pay their taxes first, right? By having the benefit assessment for clean energy sit on their property tax bill, that provides a credit enhancement to financiers to be able to feel like, "Okay, I'm going to get my money back because there's more security." It's tied into the property tax as opposed to being an unsecured loan. 

140 of our cities in town have signed on to CPACE. We supported 370 projects. Totaling nearly 250 million dollars of investment. About 20% – a little more than 20% of that investment, about 60 million dollars comes from the green bank. And the rest of it comes from the private sector who's out and about now providing businesses, non-profits, affordable housing with CPACE financing. 

We're excited by that. That's helping those businesses save over 300 million dollars in energy savings. That's what it's all about. How can you apply the tools of financing to help families and businesses deploy clean energy, which will help them reduce energy costs? While at the same time helping us on a societal level achieve the things that we're after; jobs, confronting climate change, lifting up low-income and disadvantaged communities. That's one program, CPACE on the commercial side.

[00:30:50] AR: Before we leave that though, just to be clear, you're talking about clean energy. That means we're talking things like solar panels as opposed to, for example, insulation or whatever not necessarily clean? Just more efficiency? 

[00:31:02] BG: All of the above. Yeah, all of the above. For us, statutorily, our clean energy definition includes all the renewable energies you could think about. It includes financing energy efficiency projects. 

In the case of CPACE, and I'd love to see more projects being done using CPACE, is industrial process improvements. Actually, by statute, CPACE can be used for those industrial process improvements. Imagine an industrial manufacturer using CPACE to finance the skeletal parts of the building that allow materials to flow more efficiently and thereby reduce energy. CPACE can actually be used for that in Connecticut. But we haven't seen it used that way yet. Yeah, it can be used for a variety of things.

[00:31:48] AR: While we're still talking about these different programs, I'm very interested to talk about the liberty bonds program. It sounds like a really innovative program. Maybe you can explain a bit what that's about.

[00:31:58] BG: There are two different types of bonds that we've been issuing for everyday Americans. One is the green liberty bond. And that goes back to the residential solar investment program that I was talking about before. In that program, by statute, as we were talking about the declining incentive block structure, you could imagine, as incentives are coming down and demand is lifting up, that the pressure of having cash flow to support the incentives becomes greater over time if you're not bringing the incentive levels down quick enough, right? It put cash flow pressures on the green bank. 

Now, what the policy allows for is for the utilities because we have meters on all of those 45,000 plus households. And we own the right to the renewable energy credit. The statute actually allows the green bank to aggregate all those renewable energy credits and sell them to the utility that has to comply to the renewable portfolio standard. 

And the great things about the statute is it allows them to sign a long-term contract. They're required to sign a 15-year contract to buy those wrecks from a home at a price that we set. The green bank actually got to set the price. By having an estimation of the production of solar PV of a home at a specific renewable energy credit price for a 15-year period, you now had a predictable source of revenue that we could issue a bond against. We were like, "Okay, we need cash flow today to support the program as it's coming down and demand is lifting. Let's go out and issue bonds but let's do it differently. Let's think about the American people and find a way of allowing them to support Connecticut's clean energy policies." 

We drew on the war bonds of the 1940s, where there were Series E war bonds that were issued to Americans. I think we had, I want to say, 80 million Americans bought war bonds that provided over 60% of the capital in the war efforts. You had people buying bonds and then you had taxation that filled the remaining 40%. 

Actually, citizens in this country stood up for their government and democracy by buying bonds. And they were buying things like stamps, small denomination bonds, five-dollar bonds, ten-dollar bonds. We were like, "What could we create to, one, celebrate citizens supporting their government by purchasing bonds?" So, going beyond democracy and voting to using the tools of capitalism to bring capital to things that we care about. 

We ended up designing a thousand-dollar green liberty bond. We've done the research. The research actually tells us we need to get that number below five hundred dollars so that all income classes can buy these bonds. We've learned lots of lessons now in terms of income and who would be interested in what. 

We issued our first green liberty bond and were awarded the Innovative Structure of the Year by Bond Buyer. This was our first time issuing a bond of this sort. We were recognized for it. 

Now, the principle of making a fixed income security available to everyday citizens, just like we're doing on the clean energy deployment side, was and is important to us. We continue to ask ourselves, "How can we do more to allow citizens to invest in the programs, in the people, in the projects that we want to support?" We ended up creating the green liberty notes, which is a follow-on. 

Rather than the green liberty bonds being serial bonds. You know, we sold bonds at one-year, two-year, all the way up to ten years. And then we had a 15-year bond so people could buy different types of bonds. Why not offer a no less than a hundred dollar note? You could buy up to ten thousand dollars worth of notes for one year to support our small businesses and energy efficiency programs. This is one of the other programs. 

We had to CPACE, which we talked about. One of the other programs we have is called the small business energy advantage program. And this is a collaboration we have with one of our utilities, Eversource Energy and Amalgamated Bank. And Eversource Energy administers incentive programs and they have an incentive program that provides an audit and incentives for small businesses to pursue energy efficiency, which in general will leave a gap. Meaning the incentives will provide – I don't know. 25% to 50% of the capital needs of a project. Leaving that small business with 50% to 75% more capital-defined to enable that investment to happen. 

What they have is they have an on-bill repayment program, which is a zero percent interest program for four years to support those measures on bill. So, nothing has to come out of pocket for those small businesses. Well, the challenge was that, to get the interest rate for that program, the utilities were using their own cost of capital. I'm sure you're familiar with that. How do you set your cost of capital in rates and all of that? 

I think one of our immediate findings was that the cost of capital for the utility was higher than what we could borrow it for in a typical commercial bank. If there's a gap there, then why can't we allow commercial banks to plug into that gap so we can reduce the amount of rate payer funds that have to buy down that interest rate? 

Working with Eversource, we developed a request for proposals. We put it out into the market, and that's when we found Amalgamated Bank. Amalgamated Bank came in. Check them out. They're like a B corp. Really cool values alignment. They come from the labor movement. Really, socially-driven. They said, "Okay, we will buy those loans. We'll by 80% of those loans as long as you, green bank, take 10% to 20% of those loans and are subordinated to us. You take the first loss. We'll take the losses beyond that."

So, lo and behold we now have a capital source for that small business energy program to grow for however many projects happen. No longer do we not only have a higher interest rate. We have a lower interest rate buy down. But we also now are not capital constrained. The utilities were always managing within their own treasury budgets. Now, we're allowing the markets to drive demand.

[00:39:05] AR: Because the banks are fronting the money. So, you don't have to worry that the utility is going to run out of their interest or capacity to spend.

[00:39:12] BG: That's right. I mean, if you think about it, from your – put your utility cap on, they have other uses of corporate treasury. They want to invest those proceeds and other things for their business; transmission, distribution, all the technologies and things that they need to run a business successfully. This allowed them to not have to worry about that. And allows for the private markets, in this case, to be able to lend up to the capacity of whatever the program was driving and enabling. 

What we said was, "Okay, we're doing 10% to 20% of the capital in that structure. Why not allow everyday citizens to buy green liberty notes?" We worked with Raise Green and developed a two-million-dollar campaign. Every quarter, we go out and issue 250,000 in notes to everyday citizens. And the goal there is to try to get as many everyday people to buy these fixed income notes to support small business energy efficiency in Connecticut. 

We're just wrapping up our first year now. A million dollars of the two million dollars in campaign. And we achieved, I think it was about 850,000 of the million. The first two issuances of the notes, we didn't hit our $250,000 ceiling. But the last Q3 and Q4 issuances were over-subscribed. We're building momentum behind the green liberty notes. 

Between the green liberty bonds and the green liberty notes, we're really trying to bring the green bank model in its capitalization to everyday citizens so that they have another mechanism to support our efforts to confront climate by not only voting and doing whatever they can do underneath a democracy lens. But now, they have a tool for capitalism to be able to buy fixed income securities to help them manage their investments. 

[00:41:17] AR: In my experience, when somebody issues bonds to the public, there are some pretty heavy regulatory requirements. And usually, it's necessary to hire large teams of Wall Street lawyers and also probably an investment bank, like a Goldman Sachs, or Citigroup, or someone like that to underwrite the bonds. And that can be extremely costly and time-consuming. Often, it makes sense to sell bonds only if you're financing something pretty large. How are you able to get around those barriers in order to be able to use this mechanism of bonds at this smaller scale that meets your needs? 

[00:41:51] BG: On the different levels, on the green liberty bonds, where we're issuing 25, 50 million dollars at a clip. In that context, the green bank provides a credit enhancement into that structure to enable it to be a municipal bond. Meaning, the credit rating of the bond is high because we're able to lean on what's called the special capital reserve fund, otherwise known as SCRF, in Connecticut, which is essentially us being able to lean on the credit quality of the state, which lifts the rate rating of the bond. 

If there's a default, then the green bank has to pay the default on the bonds. If the green bank can't pay them, then the state pays. Given that fact, it lifts the rating of the bond. We have that as a component of the bond. The bonds are obviously rated as a green bond. The Climate Bonds Initiative has rated our bonds and, in fact, given us a programmatic certification because they know what we're issuing. Whatever we decide needs a green bond label to it, we could stamp it on it given what we do. 

But what's interesting about the green liberty bond in the context of institutional investors, pension funds, insurance companies, is that we actually saw a greenium. Meaning, by us, day one, when we issued the bonds, we sold them to everyday citizens. We had, of a 25-million-dollar issuance, about 15 million dollars of it was immediately subscribed by people across the country. People from Texas, to California, half of that 15 came from people in Connecticut. The other half came from people across the country. We were able to confirm a specific set of serial bond purchases from retail investors. 

That allowed us to go into day two where we were selling to institutional investors the ability to reduce the bond yield. The institutional investors came in and they said, "Okay, we had a lot of them. We were over-subscribed by four times." And it allowed that price to reset. Effectively, we were able to borrow at a lower cost because citizens came in and played a larger role in setting the price of those bonds. We saw a greenium. 

[00:44:17] AR: And so, that's what you mean by a greenium, is a green premium, right? 

[00:44:20] BG: There you go. 

[00:44:21] AR: Because there's a great enthusiasm on the part of the public to support projects that have a public interest component to them. 

[00:44:27] BG: That's right. And I think the thinking is that people who buy green bonds are willing to take a lower yield because their capital is going to something that's important that they believe in. That's the thinking. We're able to demonstrate that that greenium exists. But obviously, we want to go in the other direction, which is if they things perform better than expectation, then why not reward those bondholders? 

Thinking about a structure in the future where, for example, we're able to deliver more benefits to low-income and disadvantaged communities by deploying clean energy if we hit more targets. Let's say 40% is our baseline, but we hit 50%, 60%, 70%, then we should reward those bondholders for achieving those societal benefits. We're enamored by that thinking in trying to figure out how we can bring such a structure into the markets. 

[00:45:21] AR: That would be great. Can you talk a bit more about your expectations or hopes going forward for how to take things to the next level? I know that just in the last few months, congress has appropriated quite a bit of money for green banks in a way that it's never done before. Even though it's still not clear where that money will go, it sounds like it'll create a tremendous amount of opportunity.

[00:45:41] BG: To answer that question, Alex, I feel like I have to go back a little bit to some history because the history leads to the present day.

[00:45:47] AR: Sure. Absolutely. 

[00:45:48] BG: But some of the – and I think, really, this is a story of federalism, that states, local governments acting in their interests can lead to progress at the national level as well. If we go back to 2009, we actually may recall the American Clean Energy and Securities Act of 2009. A lot of people called this the cap-and-trade bill, the Waxman-Markey bill. It's ACES is the way I think about it. ACES of 2009. There was a component, a provision of the bill, that was brought forth in committee that was the creation of a Clean Energy Development Administration, otherwise known as CEDA, which would have been a national climate bank.

[00:46:29] AR: And just to be clear. For listeners, that bill unfortunately was never passed. 

[00:46:33] BG: That's right. That's right.

[00:46:34] AR: It never became a law. But it passed the house. A lot of people worked on it for a very long time. Really interesting stuff in there. But never ever made it all the way across the finish line.

[00:46:42] BG: And that was our moment, right? We felt, we all felt, at that time that this was the moment that clean energy, energy independence, climate change, it was all going to stand up at that moment. But it didn't pass. The proponent of this part of the bill, CEDA, was the Coalition for Green Capital. They had been working with then Congressman Van Hollen to introduce this provision into ACES. And when it didn't pass, they brought it to the states. 

At the time, we had Governor Malloy who had just been elected, was the mayor of Stanford. Stanford is a financial hub in our state. We had an incoming commissioner who was my former boss at the Yale Center for Business and the Environment, Dan Esty, was coming in to become the environment commissioner. Reed Hundt and the Coalition for Green Capital came in and said, "You know, why don't you, Connecticut, create the nation's first state level green bank? Let's do what the federal government could. Let's create it in Connecticut and demonstrate that it can work." 

So, Public Act 1180 passed, essentially creating the Connecticut Green Bank, which I noted before was originally called the Clean Energy Finance and Investment Authority. But we were created from section 99 of that bill. And what we've seen over the last decade is a dramatic growth of local, city-level green banks. You have the New York City Energy Efficiency Corporation. You've got county green banks, like Montgomery County Green Bank, and a number of state-level green banks at different levels. New York Green Bank, Rhode Island Infrastructure Bank, Michigan Saves, and different structures. Nonprofits, public, quasi-public. We're all over the board. We're all very diverse. 

Now, as the Coalition for Green Capital was helping, local and state level green banks be created across the country, they were also still working to advance that federal climate bank concept. But now what was happening was innovation was happening at the state level demonstrating that it could be done. 

We have what we saw now with the Inflation Reduction Act. Now you've got back in the game. Before IRA passed, you had Congresswoman Dingell from Michigan, had passed the clean energy and sustainability accelerator several times in the house. And this was a bill, 40-page plus bill, that would have created a national climate bank. I think she was asking for 20 billion dollars. 

Then on the senate side, you had now Senators Markey and Senator Van Hollen coming back from ACES over a decade later saying, "We want a national climate bank. It's the same thing as that clean energy and sustainability accelerator. But we want a hundred billion dollars to go into it. 

We all had the Build Back Better stuff going on. Was Senator Manchin ever going to reach agreement with Senator Schumer? And are we going to get a democratic vote in support of Build Back Better? We were all in that roller coaster. 

Then the White House came out in support of Congresswoman Dingell's proposal of a clean energy and sustainability accelerator and said, "Yeah, we would like to see a 27 billion dollar accelerator to enable clean energy investment. But also, to address low-income and disadvantaged communities." 

The White House really drew the connection between enabling more private investment to confront climate by deploying clean energy and supporting climate projects with the need to lift up low-income and disadvantaged communities. So, they made that connection. 

Then once Manchin and Schumer reached agreement in July, I think it was July 27th. I feel like everybody who's in this space knows when we heard that that agreement had been reached. But I remember that evening, July 27th, recalling hearing that. Then we saw on the 16th of August, President Biden signed the Inflation Reduction Act into law, which was effectively a reconciliation budget bill. And within it is a provision called the greenhouse gas production fund. 

It includes really two parts. there is a Senator Sanders part of the bill, a section 134 A1. Section 134 goes back to the Clean Air Act. The greenhouse gas reduction fund actually is administered by the EPA. There's a seven-billion-dollar provision that invites competitive proposals from states, municipalities, tribes and other entities, like nonprofits, to support zero emission technologies for low-income and disadvantaged communities and gives an example of residential solar rooftop. 

We had indirectly provided to the Senator Sanders team what we had worked on in Connecticut. And we've been talking about the residential solar investment program. All the different unique things that we did to enable more of that deployment to happen. Specifically, solar for all to happen, where we're reaching the parity, Solar with Justice in the state. 

The seven billion dollars there, we're excited to see that when the EPA is ready to come out with their request for proposals. And then the 20-billion-dollar part of the greenhouse gas reduction fund is the result of Congresswoman Dingell, Senator Markey, Senator Van Hollen, where they have a vision of a national climate bank. That 20 billion dollars is separated into two pools of funding. Eight billion dollars for low income and disadvantaged communities. And 12 billion dollars for general assistance in other areas. 

And right now, there's a discussion and a debate around should the EPA be thinking about a single national climate bank or distributing the 20 billion dollars in a lot of different ways? You could imagine, this is an exciting moment for Connecticut and all the other green banks across the country because we've all been working hard for this moment that the sub-national level for a long time. 

In Connecticut, we've got really ambitious public policies that are in complete congruence with the EPAs goals underneath the fund. The Greenhouse Gas Reduction Fund is after reducing GHG emissions, reducing air pollution and confronting low-income and disadvantage – making sure low-income and disadvantaged communities benefit from this investment. 

In Connecticut, we've got greenhouse gas emission reduction targets in statute. We've got a 45 reduction on 2001 levels by 2030, which is consistent with President Biden's target of 50% to 52% reduction on 2005 levels. We've got a renewable portfolio standard of 40%. We've got a weatherization target for households of 80% percent by 2030. We've got an electric school bus in environmental justice community target of a hundred percent by 2030. 

We're ready. We've got all our policies in alignment with the president's goals for reducing greenhouse gas emissions. And we see all aspects of the Inflation Reduction Act, the additional requirements, the adders, the transfer payments, all the tax credit stuff that we see in the IRA. Along with this Greenhouse Gas Reduction Fund as bringing more resources to state and local governments like ours to really ramp up all our activity to achieve the policy objectives that we're after. 

There's going to be a lot of public comment, process, politics, policy, all these things going on. But at the end of the day, our hope is that we will see federal investment coming into our respective states so that we could achieve those ambitious policies.

[00:54:34] AR: Well, that's terrific. You've been very generous with your time. And I've learned a whole lot talking with you today about the Connecticut Green Bank and green banks in general. Bryan Garcia, thank you so much for the great work that you're doing. And thank you so much for talking with us.

[00:54:50] BG: Awesome. Thanks, Alex. Thanks for the opportunity to talk to your listeners. This is our moment, right? I mean, there's been no bigger time in the history of our country where we're seeing this level of investment come from the Infrastructure Investment and Jobs Act, CHIPS, the Inflation Reduction Act, the Greenhouse Gas Reduction Fund. Our moment is now. And the moment is not only about confronting climate change, but it's also about lifting up our low-income and disadvantaged communities. This is really what makes our country great and really is going to allow us to take us to the next level of being an American. That's what it's about. And loving each other, as I noted in our vision statement. If we can't get there, then we're never going to be able to confront our climate problem. But thank you, Alex, for the opportunity.

[00:55:39] AR: Absolutely. Yeah, thank you so much, Bryan. It's been a pleasure to talk with you.

[00:55:43] BG: Likewise. 

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