By FREE Staff
In June of 2023, a local community initiative in California announced the launch of its second pre-paid ‘green bond’ of $1 billion to procure 685.5 megawatt (MW) of renewable energy to serve its one million community members.
The green bond will be applied to operate four power purchase agreements, three for solar energy plus battery storage projects and one for a wind energy project.
The bond follows an earlier, December 2021, issuance of two pre-paid bonds valued at about $2.3 billion by three local community initiatives in California in order to procure 450 MW of clean electricity for 2.5 million residents across the Bay Area and Central Valley. Combined, the bonds lead to an investment volume of over $3 billion and over a gigawatt (GW) of clean energy power installation.
These dramatic developments are indicative of two critical trends. First, the issuance of the ‘green bonds’ are part of a rapidly growing green bond market that, in North America alone, now invests to the tune of $60 billion per year in clean energy, building energy efficiency, sustainable transportation and other ‘green’ sectors (Figure 1) – up from less than $10 billion per year at the beginning of the 2010s. In 2021, the annual issuance of green bonds jumped 63% compared to the previous year, reaching $81.9 billion, according to the Climate Bonds Initiative. Second, local community initiatives are claiming significant presence within both the green bond market specifically but also the overall clean energy space. This is directly evident from the example bonds described above but is also confirmed by specific research conducted by the FREE research team.
Figure 1 Growth of the North American green bond market. Source: Climate Bonds Initiative (CBI) (2023)
The Growth of the Green Bond Market
Globally, the green bond market now stands at an annual investment volume of over $250 billion directed towards sustainable energy technology (Figure 2). While the green bond market took a dip in 2022 due in large part to high energy prices, with the size of the market falling 16% compared to 2021, according to the Climate Bond Initiative’s 2022 sustainable debt global state of the market report, analysts predict green bonds to rebound this year thanks to President Joe Biden’s Inflation Reduction Act which, in conjunction with the Bipartisan Infrastructure Law exceeds $465 billion in energy and climate spending over 10 years, as we document in a recent research report which will soon be published by the Foundation for Renewable Energy & Environment (FREE) (freefutures.org/publications).
This investment is expected to dramatically accelerate especially solar energy and energy efficiency markets across the United States. With the help of the stimulus law and a catch-up in bond issuance delayed in 2022, the market could grow by up to 30% this year, according to S&P Global. The continued growth of the green bond market is an integral part of the fight against climate change.
Figure 2 Global green bond market growth (2014-2020). Source: Climate Bonds Initiative (CBI) (2023)
The Growing Role of Local Community Initiatives
The local community initiatives staking their claim in the green bond market in California are often called ‘community choice aggregation’ (CCA) authorities to emphasize their ability to represent entire cities, towns, or counties (or combinations thereof). Research by the Foundation for Renewable Energy & Environment (FREE), investigating similar efforts in Massachusetts and New York as well as California, positions these initiatives as ‘Community Clean Energy’ (CCE) authorities in order to underscore their ability to realize clean energy futures for the communities they represent.
The use of prepaid green bonds – technically, municipal non-recourse Clean Energy Project Revenue Bonds – are organized through the California Community Choice Financing Authority (CCCFA). The CCCFA, established in 2021 by founding members Central Coast Community Energy (C3E), East Bay Community Energy, Marin Clean Energy, and Silicon Valley Clean Energy, organizes pre-payment bond structures for CCEs across the state with the objective to lower the cost of clean power purchases. The stated aim of the organization is to reduce purchase costs for clean energy by at least 10%. This is in addition to the lower electricity costs already achieved by the CCEs themselves.
FREE is actively researching the CCE option and has identified a wide range of benefits, including lower electricity costs, inclusive community-level change, democratic control over energy decision-making, and a significant acceleration of the green energy sector. Our research indicates the CCE model has the ability to deliver transformative change as, for instance, the 176 CCEs in Massachusetts and the 23 CCEs in California now cover 58% and 41% of these states’ populations.
The growth of the CCE movement is astounding – most of the CCEs have formed since 2015 and the pace of adoption and diffusion appears to be accelerating. For example, Boston, the largest city in Massachusetts, recently launched its CCE effort and plans to, among others, procure 100 MW of solar energy for 20,000 low- and moderate-income families in the city. The 100 MW solar facility will save in excess of $28 million over 20 years.
The bonds issued by CCCFA are reminiscent of the bonds put to work by the Delaware Sustainable Energy Utility (SEU), which issued the first of this kind of large-scale clean energy investment in 2011. The launch of the SEU as the authority to introduce and implement the green bond investment structure was a definitive motivating factor to start FREE as an organization. The 2011 bond was recently refinanced to achieve even deeper savings for the participating agencies. With the help of the CCCFA, the multi-billion dollar investments recently announced in California are now supercharging the pace of clean energy investment, leading to an enhanced ability to achieve transformative change.
The CCE model, and the investments they are able to put to work towards the build-out of renewable energy, presents a pathway for significant change that merits our attention. The FREE research team is working on multiple projects and publications that will document the level of change and its prospects to help realize the U.S. energy and climate goals. These will be published on freefutures.org/publications when ready.