These two banks are growing with green loans

Pete Yang and Ben Koons

Pete Yang (left), senior vice president in loans at Alpine Bank, with customer Ben Koons (right), says the bank’s green lending program began as part of its overall commitment to being green. Photo: C2 Photography.

Following the rise of the renewable energy industry, some community banks have entered the green lending market. They’re offering financing for eco projects from solar power arrays to biofuel developments. Here’s how they do it.

By William Atkinson

The renewable energy industry is growing by leaps and bounds, with no end in sight. As such, it makes sense for community banks to get in on the action.

One community bank that offers renewable energy lending is $3.8 billion-asset Alpine Bank in Aspen, Colo., which has what it calls a green lending program. “We began the green lending program as part of our commitment to being green in general,” says Pete Yang, senior vice president in loans and Environmental Management System lead, “and we have been involved in green initiatives for a number of years.”

The program includes a home equity loan or line of credit (HELOC) program, which provides financing for solar electric or solar thermal energy systems, geothermal heat exchange systems, Energystar home appliances and other energy improvement projects. This program offers a 0.5% discount on interest rates, and lenders remind borrowers that they may also qualify for utility rebates or government tax credits. “This element of the program is designed to encourage people to invest in some of these energy improvements and energy efficiency setups,” Yang says.

Another element of the program involves fuel-efficient, hybrid and electric vehicle (EV) loans, designated “green” vehicles, including hybrids and EVs, that get at least 40 miles per gallon. Again, the community bank reduces interest by 0.5% for these loans.

These environmental financing efforts extend to business loans, too. Alpine Bank offers green business loans, which are rate-discounted loans for real estate-secured loans and fuel-efficient business vehicles. The bank is also a registered Commercial Property Assessed Clean Energy (C-PACE) capital provider.

“This provides us a way to finance energy efficiency and renewable improvements to commercial buildings,” Yang says. “With C-PACE loans, loan payments are wrapped into the building’s real estate taxes. As a result, the loan runs with the building, rather than with the borrower. This means that if the owner sells the building, he or she doesn’t need to pay off the loan before selling the building.”

Pete Yang and Ben Koons

Pete Yang (left), senior vice president and environmental manager at Alpine Bank, and customer Ben Koons (right) stand on the roof of Koons’ sustainable home. He built it with help from the community bank’s green lending program. Photo: C2 Photography.

Alpine Bank doesn’t direct promotions on any of its lending offerings. Without a major marketing push, customers hear about these loans through existing customers and bank staff. “Green is just part of our culture,” Yang says.

The bank’s financial underwriting guidelines are the same for renewable energy lending as they are for traditional lending, Yang says. “For example, if someone wants a [HELOC] to use for a green project, our underwriting guidelines are the same as they would be for a [HELOC] that will be used for traditional purposes,” he adds.

Alpine Bank has found that green loans tend to perform very well. Yang adds: “As a result, we believe there are some other opportunities to expand green lending, and we are exploring some of these.”

Green loans are growing

The numbers don’t lie: Renewable energy financing is set to grow in the coming decades. A report from the U.S. Department of Energy’s (DOE) National Renewable Energy Laboratory indicates substantial capital requirements over the next 30 years, according to a 2018 report. The U.S. Energy Information Administration estimates that approximately $650 billion will be spent on solar power systems, known as solar photovoltaic (PV) systems in the industry, between 2019 and 2050. And community and regional financial institutions (CRFIs) will get a large piece of the pie if current trends continue.

“These institutions could provide a significant portion of the required PV capital, while creating a large investment opportunity for themselves,” the DOE report said. “Accelerating the involvement of CRFIs in the PV financial marketplace would increase the total amount of capital available for [these] projects and broaden the types of financing products used.”

Plus, these solar loans tend to be safe and have performed well so far. “A sampling of CRFI perspectives collected from industry interviews indicates positive experiences with the development and evolution of PV loans,” the report said. “The strong performance to date suggests continued expansion of loan offerings by CRFIs already operating in this space and likely attraction of new entrants.”

Live Oak Bank expands beyond solar

Another community bank with an active green lending program is $4.6 billion-asset Live Oak Bank in Wilmington, N.C. Its solar loan products include community solar financing, energy storage financing and utility-scale solar financing, and it also offers bioenergy financing.

Live Oak Bank created its renewable energy lending vertical in January 2016 for a number of reasons. One was the rapid development of utility-scale solar projects in its home state of North Carolina. “Ultimately, North Carolina has become the number two or three installed-solar state in the nation,” says Jordan Blanchard, the community bank’s business unit head of energy and infrastructure lending.

Another reason was the creation of a special USDA program targeting renewable energy lending. “We already had a comfort with utilizing government-guaranteed lending programs,” Blanchard says.

A year after entering the solar lending market, Live Oak Bank introduced loans for bioenergy projects, which turn biomass, such as wood and agricultural products, into energy or fuel. “North Carolina has a special hog waste-to-[renewable natural gas] mandate, so this was a natural progression for us,” Blanchard says.

While the programs are extremely successful, Blanchard says there are some challenges. One is that the community bank is almost always lending on a project yet to be completed and, therefore, has to rely on projected income. To mitigate this challenge, the community bank orders an independent engineer report, which validates the design and production estimates. “If the design or the build quality is flawed, the project will not produce sufficient cash flow to cover operations and debt service,” Blanchard says.

Another challenge relates to a project’s operations and maintenance. “If a system is not maintained in a comprehensive and professional manner, production will be less than estimated and could endanger the project,” he says.

To address this challenge, Live Oak Bank heavily scrutinizes operations and maintenance providers and requires approval of those service providers just as much as it does the project sponsor or developer.

According to Blanchard, the future of the community bank’s green lending initiatives is bright. “We are now pushing into commercial and industrial solar,” he says. “We view this as the final frontier of solar financing.”

“We are now pushing into commercial and industrial solar. We view this as the final frontier of solar financing.”
—Jordan Blanchard, Live Oak Bank

This forward momentum isn’t surprising when you consider the results so far. “We have far exceeded our expectations,” Blanchard says. “To date, we have financed over $600 million of utility-scale solar projects with a combined cost of over $1 billion. Given that our first solar loans were funded in November 2016, we accomplished this funding level in roughly three years. We feel very fortunate that we have been able to add value to our shareholders while benefiting all of society.”

William Atkinson is a writer in Illinois.