By Daniel Scripps

A new report (pdf) from the Brookings Institution discusses the nearly two dozen  state-level clean energy funds (CEFs) that have invested in clean energy projects and concludes that CEFs hold out great promise for the continued design and implementation of “bottom up,” decentralized clean energy finance solutions and economic development.  The report also anticipates that CEFs will need to play a critical role given the decline in federal financing support for clean energy.

The report, which was issued on January 11, notes that current funding for CEFs totals approximately $500 million per year (based largely on public-benefit charges included in utility rates), and that over the last decade state clean energy funds have invested over $2.7 billion state dollars while leveraging an additional $9.7 billion in federal and private sector investment, for a total of more than $12 billion in investment in over 72,000 clean energy projects nationwide.  In addition, state-based energy efficiency funding has increased from $1.7 billion in 2004 to $4.4 billion in 2009.

Even with these totals, however, the report argues that the current model whereby CEF funds are  predominantly used to  provide direct incentives in the form of grants and rebates to promote deployment of clean energy projects is not sufficient on its own to foster broader clean energy-based economic development in the respective states.  Instead, the report calls for three additional measures states can take to increase the effectiveness of CEFs:

  • Reorient a significant portion of CEF funding (at least 10 percent of the total portfolio) toward clean energy-related economic development;
  • Develop detailed state-specific clean energy market data (e.g., critical industry clusters and gaps in their supply chains); and
  • Link CEFs with economic development entities community development finance institutions (CDFIs), development finance organizations and other stakeholders in the emerging clean energy industry 

While acknowledging that some of this activity is already taking place in individual states (notably, California, Massachusetts, and New York), the report asserts that more widespread utilization of these best practice recommendations can move CEFs from supporting specific projects to serving as catalysts for the growth of the clean energy sector as a whole.

Finally, the report recommends that the federal government needs to take various steps to recognize and partner with CEFs:

  • Consider redirecting a portion of federal funds (e.g., from technology support programs administered by the U.S. Department of Energy) to provide joint funding of clean energy economic development efforts through matching dollars to state funding efforts
  • Create joint technology partnerships with states to advance each state’s targeted clean energy industries, by matching federal deployment funding with state funding; and
  • Working with states to “decentralize” financing decisions to local entities and rely on more “development finance” authorities that have financially supported traditional infrastructure and could finance new clean energy projects and programs

The report stems from continued analysis from Brookings of state clean energy funding mechanisms, including coverage of the new Connecticut Clean Energy Finance and Investment Authority, as well as a conference on state green banks co-hosted by Brookings and the Coalition for Green Capital.