Legislative Roundup—Green Bank Bill (HB 154/SB 125)
January 26, 2024
By Brian Kassof
Ed note: This is the first in a series of articles looking at energy-related bills the Alaska Legislature will be considering during the 2024 session (which started on January 16). First up will be bills introduced in 2023. This article is on HB 154/SB 125, which would create a state Green Bank. Next up will be the bills on Renewable Portfolio Standard (RPS—HB 121/SB 101) and Community Solar (SB 152).
HB 154 calls for the creation of a Green Bank, known as the Alaska Energy Independence Fund (AEIF), under the auspices of the Alaska Housing Finance Corporation (AHFC). The purpose of the AEIF would be to help increase the funding available for “sustainable energy projects” in Alaska. These could include everything from loans to individual homeowners to install solar panels or heat pumps to financing for community or commercial-scale renewable energy projects like wind or solar farms.
Green Banks leverage public funds to encourage private investment in clean energy projects. Supporters of the AEIF say it will allow the state to access federal funds associated with the 2022 Inflation Reduction Act (IRA). It could also help more Alaskans make energy upgrades that are currently eligible for federal tax credits and incentives.
HB 154 was introduced in April 2023 at the request of Governor Dunleavy (its Senate counterpart is SB 125). A similar bill (HB 170/SB 123) was introduced into the Legislature in 2021. It would have placed the AEIF under the auspices of the Alaska Industrial Development and Export Authority (AIDEA). HB 170 did not pass, in part due to concerns about AIDEA’s lack of transparency. HB 154/SB 125 ended the 2023 Legislative Session in the House and Senate Finance Committees and the legislature has until the end of the 2024 session to pass this version of the bill.
What Is a Green Bank?
Green Banks are financial institutions created using public funds to help finance clean energy projects, such as renewable power generation or energy efficiency upgrades. Green Banks are not banks in the traditional sense–they do not have customer accounts or accept deposits. Their sole purpose is to help finance clean energy projects.
Green Banks can make direct loans to finance projects. But their main function is to use their public funds to leverage private investment for clean energy projects. Banks and other private investors are hesitant to invest in this sector for a number of reasons. These include a lack of familiarity with the technologies involved that leaves them uncertain about how to evaluate potential risks and rewards, and concerns about the administrative costs of smaller loans to individuals and businesses.
Green Banks use a number of tools to overcome investor concerns. They can provide loan guarantees to alleviate concerns over risk or take on the administration of smaller loans. They can also help create innovative financing packages that draw on multiple funding sources, including the creation of public-private partnerships. This type of collaboration can sometimes allow a project to access governmental or non-profit grants and loan supports that would not otherwise be available.
In a webinar presented last November, Chris Rose, the executive director of the Renewable Energy Alaska Project (REAP), pointed out that, even when banks are currently willing to loan money to individuals for projects like installing solar panels, they often only offer high-interest/short-term loans. Green Banks, he said, can help in two ways. First, by educating the banks about the economics surrounding newer technologies, they can help them recognize how such projects can save borrowers more money than the cost of the loan, making them a relatively safe investment. Second, they can also offer supports like loan guarantees to ease banks’ concerns about risk.
This combination of education and risk mitigation can help borrowers secure better loan terms. Green Banks can also help those who would otherwise be unable to get loans, due to their income or credit history, access the funds needed for energy upgrades that often more than pay for themselves over time.
There are currently 23 Green Banks in the United States, at the state, regional, and community level. In 2022 they were responsible for about $4.6 billion in investments in clean energy projects. Every dollar they invested in 2022 attracted an additional $2.50 in private investment.
For more information on Green Banks and how they operate, see this AETP Explainer.
How Would AEIF Work?
HB 154 provides a fairly wide range of tools for AEIF to pursue its mission of promoting “sustainable energy development.” These include making direct loans, providing loan guarantees or other supports to attract private investment or improve loan terms, issuing bonds to raise additional capital, and forming public-private partnerships. It can also support public, quasi-public, or non-profit entities that provide financial and technical assistance for sustainable energy development. The fund’s leadership would determine which of these methods it would actually employ and how its capital would be allocated.
The bill defines “sustainable energy development” to mean renewable energy generation systems, improving buildings’ energy efficiency, energy storage systems that support renewable generation, “clean transportation” (which includes electric vehicles and the supporting infrastructure), and any other energy efficiency or greenhouse gas reduction technology approved by AFHC.
Akis Gialopsos, the deputy executive director of AFHC, told the House Finance Committee in May 2023 that the bill was written to encompass a wide range of possible activities to ensure AEIF could take advantage of federal programs that had been funded, but whose final rules had not yet been written. Although HB 154 empowers AEIF to pursue a variety of projects, it also specifies that AEIF should prioritize the support of “efficiency and renewable energy for residential buildings, commercial buildings, and community facilities.”
The AEIF would be a financially-independent subsidiary of AFHC, whose Board would oversee its work. The bill’s supporters believe AFHC’s experience with finance, energy efficiency measures, and federal programs make it a good home for the fund. The Alaska Energy Authority (AEA—a public corporation tasked with reducing energy costs) would provide technical support and assistance. The bill specifies that the Legislature would have to approve any loans over $20 million.
The AEIF would receive its initial funding, set at $20 million, from the state’s budget. The expectation is that it will qualify for some of the $20 billion dollars earmarked for Green Banks in the IRA’s Greenhouse Gas Reduction Fund. The revenue statement submitted in April 2023 allowed it to accept up to $20 million in federal funds for the program, although this figure could change during this legislative session.
Why A Green Bank Benefits Alaska:
According to a presentation by AHFC to the House Energy Committee in April 2023, the stated policy objective of the AEIF is to “Help Alaskans be less dependent on expensive energy sources for their homes and businesses.” Supporters of the bill frequently mention the need to reduce Alaska’s reliance on outside sources of fuel, a dependence that, as Rose and Representative Calvin Schrage (I-Anchorage) have pointed out, will only deepen with projected shortages of Cook Inlet natural gas.
AEIF’s primary benefit would be to increase the amount of overall investment available for sustainable energy projects by attracting private capital and developing innovative financing packages. These projects would save individuals and businesses money on energy bills and diversify sources of generation. In the REAP webinar, Rose pointed out that these projects would create local jobs and help develop a workforce prepared to meet the growing demand in Alaska for these technologies in coming years.
In addition to helping homeowners and businesses get better credit terms for loans, the AEIF could potentially promote greater access to energy upgrades by providing loan guarantees or other supports for those with lower-incomes who often lack access to credit. The bill’s backers also stress how financing through the AEIF could help Alaskans take advantage of the numerous tax credits, rebates, and loan supports for clean energy technologies made available under the 2021 Infrastructure Investment and Jobs Act (IIJA) and the IRA.
Supporters see the program as an effective addition to existing state grant and loan programs lowering barriers to renewable energy development. One such program is the Renewable Energy Fund (REF), which provides grants to help renewable projects during the early stages of development. During a Common Ground Alaska forum on energy in December 2023, Representative Schrage emphasized that, once funded, the AEIF will be self-sustaining—it will not only attract federal funds, but will grow over time as loans are paid off with interest. This is in contrast to the REF, which must constantly be replenished from the state budget.
AEA Executive Director Curtis Thayer, in testimony to the House Finance Committee, said that while existing programs like the REF and the AEA-administered Power Project Fund (which loans money to renewable power projects) do a lot of good, they are limited in how much funding they can provide. He said that AEA is advising on numerous renewable energy projects, especially in rural Alaska, that are economically viable, but need a financing boost, such as AEIF could provide, to get off the ground.
It remains to be seen how AHFC will prioritize the use of AEIF’s funding--how much of it will go to support loans to individuals and businesses for smaller projects and how much will go to support commercial or community-scale renewable power projects.
The public comments on HB 154 and SB 125 submitted to the Legislature in 2023 were almost unanimously supportive of the bill, and it passed the House Energy Committee with bi-partisan support. The only member of the Energy Committee who spoke against advancing the bill was Representative Mike Prax (R-North Pole), who objected that the creation of the AEIF would only make Alaska more dependent on federal funding. Members of both the House and Senate Finance Committees seemed supportive of the bill during hearings in May 2023.
Differences from HB 170/SB 123
There are a number of major differences between this bill and the one introduced in 2021. The most significant is the relocation of the AEIF from AIDEA to AHFC. Another notable change is that, while HB 170 called for the creation of a five-member advisory board appointed by the Governor, HB 154 has eliminated this. HB 154 also drops a couple of items–”industrial decarbonization” and projects designed to reduce greenhouse gasses through forestry or regenerative agriculture–from the list of what can be considered “sustainable energy development.”
There are also some additions to HB 154 that were not included in the earlier bill. One is the language stating that the fund should prioritize sustainable energy development for buildings and community facilities. Another is the identification of AEA as a source of technical consultation and assistance.
What Next?
The bill was advanced by the House Special Committee on Energy in April 2023 and initial hearings were held in the House and Senate Finance Committees in May 2023. No additional action was taken before the Legislature adjourned in 2023, and no hearings have been scheduled as of January 25. The bill was not referred to any other committees in either chamber (the previous version of the bill, HB 170, passed through the House Labor and Commerce Committee in 2021). It has until the end of the 2024 legislative session to pass.
