A Path Forward for Climate Finance: Key Issues and Recommended Actions
By Matt Noel, NECEC Intern
On June 22, NECEC hosted its Sixth Annual Cleantech Financial Innovation Summit. Leaders from the public and private sector across several parts of the clean energy industry came together to discuss how innovation in the financial sector can help combat the adverse effects of climate change. Through informative panels and keynote speakers, participants learned about the work yet to be done in this arena, and the path to success going forward.
NYSERDA, the event sponsor, has been instrumental in helping the financial sector combat climate change. The agency began this effort by partnering with New York’s Department of Financial Services (NYDFS) in September of 2020 to analyze and identify financial risks related to climate change, strengthen New York’s climate resilience, find financial ways to mitigate climate risk, and accomplish the goals set forth in New York’s Climate Leadership and Community Protection Act. NYDFS has also done independent work in support of climate change, sending a letter to insurance companies with a stake in New York State in September 2020 calling attention to the financial risks of climate change. Because insurers play a crucial role in the climate crisis, they need to be proactive on climate change for the health of their own companies and the wellbeing of the greater society. It’s in the interest of insurers to quantify risks associated with climate change to drive activities that help mitigate long-term effects, which will lead to stranded assets that threaten the financial system over time. NYDFS’s work also highlights that low income communities often bear the brunt of climate change, and encourages insurers to pay special attention to ways they can aid these communities.
Some insurers in New York have been proactive about climate change thus far, but it is now imperative that all insurers adopt this mindset at an even greater scale. To assist in this transition, NYDFS released expert guidance for insurers, hosts webinars to encourage discussion and idea-sharing between stakeholders, and encourages insurers to appoint a sustainability ambassador or committee to their board.
Also during the Summit, the panelists shed light on key barriers facing industry leaders and recommended actions to overcome these issues, such as:
- Lack of consistent policy and incentives that would encourage businesses to invest in clean energy. Recommendation: More States and cities should implement policy sticks that incent businesses to invest in clean energy and penalize them if they don’t
- Lack of standard contracts for community solar, or other emerging sectors like EV Charging, Energy storage, integrated solutions like Microgrids. Recommendation: Governments can publish standard contracts for projects to speed up development.
- Customers not educated in clean energy. Recommendation: Scale up education of all types of customers about clean energy opportunities and options to finance them // Bring more transparency to the ROI of projects. Present projects as a resource rather than just another part of your balance sheet.
- Lack of tools to transfer risk of emerging technology solutions. Recommendation: Encourage private sector to develop tools to transfer risk of emerging technology from developers to insurers.
- A market gap exists between large banks who have lots of capital ready to deploy in clean energy and a lack of viable large scale projects, or aggregators who can bundle lots of small projects together to make them big enough for big banks to be interested. Recommendation: Encourage partnerships between multiple organizations who collectively can meet the needs of large banks. Third party organizations such as NECEC can promote these conversations and help make connections.
- Solar and wind are now showing declining returns to investors and are less attractive to some banks and financial institutions. Recommendation: Encourage financial innovation in emerging clean energy sectors beyond wind/solar so these sectors can benefit from lower cost of capital as wind and solar have. This could include: insurance, virtual power purchase agreements, financial hedges.
- Low income population does not have equal access to clean energy upgrades eg. Solar, community solar, EV charging, Geothermal, microgrids. Recommendation: Public sector can implement policy requirements for projects affecting low income communities.
- Energy storage market does not leave enough reward for developers. Recommendation: Reform markets and hedging instruments for energy storage and other emerging markets (hydrogen production, ammonia synthesis), to allow it to develop as a mainstream market and reward developers profitably.
- Lack of credit and other financing options for small to medium clean energy developers. Recommendation: Encourage private sector to fill gaps in financing market-ie credit for small to medium businesses.
There is much work to be done in the climate finance sector, but with organizations such as NYSERDA, NYDFS, NECEC, and the help of our panelists, speakers, and attendees of the Financial Innovation Summit alike, the future is looking bright. To view a recording of NECEC’s Cleantech Financial Innovation Summit, visit the organization’s YouTube channel.