As many of our manufacturing and corporate clients have engaged us to help them seek out and secure financing from government funding programs, I thought this would be a good time for a discussion about the proposed new Ontario Green Bank – a potential new funding source for eligible entities and their projects.
When the Ontario government announced its Climate Change Action Plan in May 2016, one of the more overlooked components was the promise to create a “Green Bank.” While few details existed at the time of the announcement, the name at least suggested that a new government agency would be created to flow public funding to green businesses and projects. Reference to the Green Bank in the Climate Change Action Plan defines it as an entity that would “help homeowners and businesses access and finance energy-efficient technologies to reduce greenhouse gas pollution from buildings.” Recently published ministerial mandate letters go further to suggest that it will serve to spur innovation, reward efficiency, make businesses more competitive and “create conditions for new sectors to emerge and new businesses to thrive in a competitive low-carbon economy.”
At this stage, we can assume the government’s intention is to have the Green Bank be the main point of access for various organizations and individuals to the billions in support that has been made available through the Plan. The significance of this commitment should not be overlooked. Specifically, the Green Bank should be of interest to wide stakeholder groups that include:
1. Green tech and clean tech companies with established and proven technologies;
2. Manufacturers intending to participate in the carbon credit auction schedule for early 2017;
3. Commercial property owners;
5. Small and medium sized business owners;
6. Financing providers including banks, private equity firms, and individual investors;
7. Other stakeholders anticipating an increase to their tax expense as a result of cap-and-trade.
Since the announcement, there have been few additional details on the Green Bank. Other than some references to the initiative on the Climate Change Action Plan website, and more recently, in the published mandate letters of both the Minister of the Environment and Climate Change, and the Minister of Economic Development and Growth, we still haven’t been provided with important items such as key objectives, organizational structure, or specific programs that would be offered through the new entity. That said, some assumptions can be made based on intelligence that has been gathered over the course of the summer which should help guide expectations. These points include:
· There is precedent for a Green Bank – It is likely that the Ontario agency will mirror other Green Banks that have already been established in other jurisdictions including Great Britain, the State of New York State and Vermont;
· Ontario's Green Bank will be very well funded – According to a leaked cabinet document reported by the Globe and Mail, a total of $3.8B has been allocated to capitalizing the new entity. This is a considerable amount, particularly when compared to similar agencies in other jurisdictions (the target total capitalization of the New York Green Bank "NYGB" is $1B), and confirms the Ontario government's commitment to the concept;
· The Green Bank could be launched as early as Spring 2017 – We don’t know this for sure (i.e., a launch date hasn't been officially announced), but given that the first auction of carbon credits is expected to happen in the first Quarter of next year, it would make sense that a significant update will be announced at around the same time;
· The Ministry of the Environment will have the lead – Weknow that the Green Bank will be overseen by the Ministry of the Environment as opposed to an economic development focused ministry that may have traditionally interacted with the business community on direct supports;
· Environment officials are looking for input and advice – This is an assumption based on the fact that this ministry has rarely if ever been provided oversight of so much capital. Managing/overseeing a budget of this size is a new challenge for a ministry which has traditionally been a regulator and administrator of permitting programs, not a funder;
· Creation of the Green Bank is already underway – Given the assumptions that a meaningful announcement will happen in the Spring of 2017, and that a great deal of work has to happen before then, we can reasonably suspect that initial Requests for Service (RFS), and Requests for Information (RFI)’s have already gone out to consulting companies to scope the project and provide some foundational market analysis. Despite this, they are almost assuredly in the very early stages and given the ‘A’ to ‘Z’ nature of the task, there is likely still opportunity to consult and help shape the path of the Green Bank.
Acknowledging that the above doesn’t provide a complete picture – a brief look at how the Green Bank concept has been interpreted by the State of New York could help provide some clarity on the opportunity here. This benchmark will be particularly interesting to those stakeholders who anticipate they will need financial help in the upcoming cap-and-trade environment.
New York Green Bank ("NYGB")
The NYGB was announced by governor Andrew Cuomo in January 2013 as a clean energy initiative that complemented the state's “Integrated Energy Strategy.” It is intended to act as a catalyst to help the State increase the supply of renewable energy on its grid, spur their clean tech and green tech companies, and meet their GHG reduction targets. In Ontario, the Green Bank would address slightly different priorities, but it nevertheless will share similar principles and therefore remains a useful benchmark.
NYGB was launched under the guidance that it was to be structured and operated like a private sector fund, with public capital being deployed to address market barriers such as lack of private financing available for certain energy projects. Amongst its stated objectives listed in its Business Plan are: 1) assist with reduction of State greenhouse gas emissions ("GHG"); 2) leverage public-private partnership resources to mobilize private capital and recycle public capital; and 3) become a self-sustaining entity beyond its State-derived initial capitalization ($1 billion).
Of most interest to Ontario stakeholders should be the product offering of the NYGB. From this, individuals and firms can derive a sense of how the Province’s estimated $3.5 billion can be leveraged.
Following extensive consultation during the agency’s formative stage, the NYGB launched three main products: 1) credit enhancements, 2) warehousing/aggregation, and 3) asset loans & investments. More detail on these can be found in their yearly Business Plan publications and on NYGB's website (https://greenbank.ny.gov/).
It should be noted that through these three products, and despite only being operational for a couple of years, the agency currently has an active portfolio of over $330M, and applications for over $700M that would support $3 billion in total investments (as of the publication of NYGB's Business Plan, June 2015). In the 2016 Business Plan, the NYGB declared its intention to increase the pace of their investments, and set a goal of $200M in 2017 (or $50M per quarter). This will mark a two-thirds increase to its portfolio, and suggests the model is a success.
Depending on the yet to be defined barriers facing mainstream adoption of energy retrofits in Ontario, the three product categories of the NYGB may be the chosen options for the Ontario version. Whether taking a "first loss" position on projects with subordinated debt to unlock increased private sector and bank interest (Credit Enhancements), offering a promise to match private investment on more risky projects (Asset Loans & Investments), aggregating projects and accepting liquidity risk to unlock private investment appeal (Warehousing), and/or simply managing new repayable lending programs (Asset Loans & Investments), the Ontario Green Bank will want to assist in the acceleration of green projects with these or slightly different financial tools.
Ontario stakeholders should note that NYGB uses an open RFP based process to select projects. If this process would be copied in Ontario, it is likely that the building owner would be required to identify an established technology and a private sector funder (bank or other investor) and then act as a lead applicant – i.e., provide detail supporting the public funding ask within the parameters of a formal RFP process. NYGB uses a multi-stage approval process to select projects that meet their stated objectives and goals, which is likely to be emulated in the Ontario version as well.
As the cap-and-trade discussion ramps up in Ontario over the coming Fall and Winter months, it is important for stakeholders to keep the Green Bank opportunity in their minds. Further, interacting with Environment officials about the Green Bank at this early stage would have a dual benefit. First, it would help you to better understand the potential benefits available to your company of partnering with the entity. Secondly, your input could help shape the products offered when it is fully launched. Keeping abreast of all developments, and beginning an internal discussion at your business about Ontario's Green Bank is worth having if you think there's a future opportunity. For further insight and details, please do not hesitate to contact myself or one of my Sussex Strategy Group colleagues.