by James Eckler
In the future, small and regional banks will grow more than large banks, even though we have lost 300 banks a year over the past decade, and losses will probably accelerate. Regionals will have to look for ways to be more flexible than the big banks.
The focus of this article is on how regional banks can add new divisions that support a transition to renewable energy and a country that’s less dependent on imported oil, while supporting export expansion and job growth.
The Problem: Growing Energy Demand, Decreasing Imported Oil
The U.S. needs to decrease imported oil for power by increasing renewable energy sources for electricity and transportation. While we are decreasing imported energy, we need to handle domestic demand increases and as well as provide renewable energy to support export expansion and employment growth.
We have two options. We can do like we did with the telecommunications industry and fund a capital-intensive industry with high cost debt arranged privately, or we can allow banks to arrange for debt financing. Bank Holding Company laws permit banks to work in conjunction with project developers to fund the "non-operating side" of new renewable energy plants.
U.S. energy rates are far too low to allow for significant industry growth in renewable energy without support from low cost financing sources. We are stalling the industry by relying on very complex laws and rules for clean energy production, combined with very overwhelming and complex financing, tax credit, as well as disproportionate partnership rules. Establishing these small scale alternative energy options will require a financing base – and that base should be the regional bank.
The Solution: Banks Own the Energy Toolkit
While banks have all of tools to bring small, regional clean energy production companies together, they are not doing it today. They have the toolkit, but they are still working on organizing it.
They have the ability to:
- Do private placements for equity
- Own 5% of the companies in voting stock
- Serve as a consultant to these companies on financial organization
- Work with local communities to develop jobs and carry out job creating activities and funding community development (including being a Community Development Entity)
- Arrange for municipal debt
- Provide "gap" financing, and financing or purchase of tax related benefits
- Lease plants to customers (non-operating leases)
The problem with regional banks is they often lack the "centralization" of these tasks and services to make it easy for customers to tap into all the pieces at once.
Regional banks have fantastic opportunities to help their local communities, grow their loan volume in a very capital intensive area, help with the job creation process, and offer a "one-stop service" for energy project developers. They should do it, but today they haven’t really started yet. It is coming.
Benefits to Bank Shareholders
There is a lot of discussion about the lack of loan growth and value creation in the banking industry. This is an opportunity for banks and their regulators to come together and create specialized areas within a bank that can put these deals together.
They can pull in the right resources without creating losses and all the while build local clean energy communities and related jobs. Many renewable energy plants have replicable elements – a bank is the logical place to store this collective knowledge base.
This is a winning new business area for banks, and a way of avoiding the mistakes that were made during the telecommunications era. It is our choice. The banking industry can add loan volume to provide the energy to create products, and the energy to create both exports and jobs.
This could be a new leg of growth on the asset side for banks that also serves a public purpose. Banks may be able to return to their previous role of looking for the triple bottom line – a profitable, an environmental, and a social purpose.
James Eckler is President of EcoEnergy North America, and Savannah Ventures, LLC, a CDE partnership that focuses on developing clean energy projects and solutions in North America.