NY Green Bank Fills Funding Gap For Clean Energy Projects
New York State's climate and clean energy goals are some of the most ambitious in the nation, with a keen focus on decarbonizing residential and commercial buildings — significant sources of greenhouse gas emissions.
While these goals encompass the entire state, a major focus for building decarbonization is New York City, home to the largest concentration of buildings in the nation. There, landlords and owners are required by Local Law 97 to maximize their buildings’ energy efficiency, transition off fossil fuels for heating and hot water, and procure electricity from zero-emission power sources in the coming years.
“Climate change is a real threat, and New York State is committed to reducing greenhouse gas emissions through investments in building decarbonization and other strategies,” said David Davenport, managing director of NY Green Bank, a division of the New York State Energy Research and Development Authority.
NYSERDA implements the state’s clean energy innovation and investment strategies. Recognizing that financing from traditional sources might be hard to come by for clean energy and sustainable infrastructure projects, NY Green Bank was launched more than a decade ago to help fill the gap.
NY Green Bank's role, Davenport said, is to provide gap-filling and market-transformative financing solutions that deliver clean energy outcomes in New York State while also serving as an example to private lenders.
“NY Green Bank supports transactions that pencil out and help meet the state's Climate Leadership and Community Protection Act goals — but, for whatever reason, can't find capital in the private markets,” Davenport said. "We seek to demonstrate that such projects can produce reliable, predictable returns that are financeable."
Since its inception in 2013, NY Green Bank has committed more than $2B to finance clean energy and sustainable infrastructure projects, which range from relatively simple building weatherization efforts to the construction of offshore wind turbines.
Bisnow spoke with Davenport about how the state-sponsored investment fund helps building owners and developers advance building decarbonization and sustainable development in support of the state’s climate goals.
Long-Term Benefits |
Building decarbonization strategies generally fall into one of two categories: weatherization and electrification, both supported by NY Green Bank, Davenport said.
Weatherization includes relatively simple measures to reduce energy consumption, such as installing efficient lighting fixtures, low-flow water controls and insulating pipes, roofs and walls to limit heating and cooling leakage. Davenport described these tactics as “light touch,” with the benefit of improving resident comfort.
“These projects are generally low-cost and have pretty quick paybacks,” he said.
The other category, known as electrification, demands a greater investment of time and money as it requires replacing fossil fuel-powered heating and domestic hot water systems with more efficient, modern electric-based systems. Building owners will save money over time, but these projects typically require customized engineering, especially for larger buildings, and new equipment purchases and installations that can require large upfront capital spending, Davenport said.
Fortunately, he noted, the state offers both technical assistance and incentives through multiple programs, as well as financing support through NY Green Bank.
“Building electrification projects typically have higher upfront costs than traditional fossil fuel-powered building systems, but provide considerable long-term benefits that have to be factored into the decision,” Davenport said. “Even so, many lenders may not be willing to extend financing to building sustainability measures that to them seem additional or unnecessary. It requires some outside-of-the-box thinking.”
‘We Roll Up Our Sleeves’ |
NY Green Bank’s job is to step in when a conventional lender can't be found for a project that would otherwise make financial sense, he said. It offers financing products for building decarbonization projects that can be applied at various places in the capital stack or project lifecycle. These include pre-development, construction, construction-to-permanent and other loan types.
“We roll up our sleeves to provide creative financing solutions to support efficiency and electrification measures across New York State,” Davenport said. “We offer a lot of flexibility in terms of financing and support, with the main loan criteria being that project economics are sound and that the project will result in a significant level of greenhouse gas reduction.”
Although it understands sustainability projects better than most private lenders, NY Green Bank isn't a source of concessionary capital, he said.
“Private financial markets are not going to follow our example if we lend at below-market rates,” Davenport said. “Most of our transactions are structured at market rates, with the goal of demonstrating that such financings can deliver reliable and predictable returns with the expectation that the private sector will be motivated to follow our lead.”
An exception to this practice concerns buildings in disadvantaged or underserved communities, where some building owners may lack the resources to take out market-rate loans.
Davenport said NYSERDA and NY Green Bank are committed to working with these communities, which is why they launched the $250M Community Decarbonization Fund in 2023. The fund provides access to low-cost capital for projects that range in cost from $4M to $50M.
“We heard from the stakeholders that affordable housing and community facilities in disadvantaged communities may need smaller amounts of financing and lower interest rates than our typical transactions, and that qualifying for our market-emulating credit process was too challenging,” he said. “For those reasons, we are partnering with intermediaries known as community development financial institutions, which serve as outsourced lending partners that invest in disadvantaged communities.”
Davenport said a recent example of NY Green Bank’s commitment to affordable communities was its $24M predevelopment loan to support the rehabilitation of approximately 1,700 affordable housing units at the Reid and Park Rock public housing development in Brooklyn. Energy efficiency and decarbonization efforts there are projected to reduce lifetime carbon dioxide emissions by 15.7K metric tons.
This was a carbon reduction effort that a conventional lender probably wouldn't have bothered with, he said.
“We've heard over and over again from project sponsors that a lot of these projects, whether for affordable or market-rate communities, wouldn't move forward without NY Green Bank stepping in to fill the gap,” Davenport said.
To learn more about NY Green Bank and the types of transactions it finances, click here.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
