Climate and clean energy finance were hot topics at this year’s Opportunity Finance Network (OFN) Conference. Outside of the robust climate and resiliency track, it seemed nearly every conference session included a nod to the growing roles of community development financial institutions (CDFIs) in tackling the climate crisis. This was due in part to the timing of the conference; many CDFIs and their partners had recently wrapped up an intense application process for the Greenhouse Gas Reduction Fund, a $27 billion funding opportunity presented by the Environmental Protection Agency (EPA) under the Inflation Reduction Act. Now, while we all await the Agency’s next announcement in the spring, CDFIs are making plans for how to best put that funding to work when it is awarded next year.
Locus dipped its toe into climate finance and made its first solar loan in 2016. Since then, we’ve provided financing to over 60 solar projects in Virginia, New York, and DC, which translates to over $50 million in closings and 21MW of solar energy produced. Not bad for a seven-year-old program, but it was no easy feat. Much homework was required before that first loan was made, and the work continues as this field evolves.
During the OFN Conference, I participated in a session entitled, “Starting and Scaling a Climate Finance Program”. Alongside a brilliant panel of experts, which included representatives from Enterprise Community Loan Fund, Soal and Energy Loan Fund (SELF), Coastal Enterprises Inc. (CEI), and Inclusiv, I shared my advice to CDFI leaders who are interested in developing a solar lending practice. The room was packed, and there were too many questions to answer!
In case you missed it, I’m sharing three keys to building a solar loan program as your organization considers its place in financing climate solutions and resilient communities.
Talk to other green lenders to understand what you’re getting into.
Before we ever made a solar loan, I spent a lot of time picking the brains of other green finance leaders. While our CEO was supportive of adding clean energy to our focus areas, there was much to be learned about the ins and outs of financing solar projects – particularly as it pertains to structuring and underwriting. I arranged several calls and meetings with climate and clean energy lenders, and I brought our Chief Risk Officer along to help him get comfortable with the prospect of building a solar program.
Lack of financing is the primary reason why solar projects don’t get off the ground, and I believe unfamiliarity with what it takes to underwrite those deals often stands in the way. Spend time talking to those who have figured it out – like me!
Understand your market before you start designing products.
Early on in our clean energy journey, I decided I would use my lending and energy efficiency backgrounds to develop loan products that supported commercial energy efficiency and green building. I reached out to commercial HVAC companies in Virginia and told them all about it. For a year, I tried everything I could think of to generate an energy efficiency loan lead. The phone did not ring.
One day, I heard from one of our real estate developer partners who wanted to know if we could finance two small solar projects. That was a light bulb moment! Perhaps there was a market for clean energy financing in Virginia – but maybe it was solar. I reached out to the handful of solar developers in Virginia to let them know we were in the game, and they were excited to finally have a financing option to offer their clients. And the rest is history!
Bottom line: do your homework. The market for climate and resiliency finance is rich, but it is multi-faceted and dependent on geographical, social, political, and other factors. It’s important to get a firm grip on the need before you attempt to meet it.
Leverage your network and ask for referrals as you grow.
As I mentioned above, our first solar loan went to an existing real estate developer customer. As you scale your climate finance program, check your portfolio for opportunities. Depending on your focus areas, you may have low hanging fruit from small business owners (energy efficiency), housing developers (solar installations), or municipalities (resiliency projects). Make it known that you’re a resource for this type of financing and listen for ways to expand your relationships and impact.
Once you’re up and running, ask for referrals. In my case, referrals have been our primary source of leads. Organizations in the solar space all know each other, and with financing opportunities being relatively sparse, there is ample room for new partners at the table. Just make sure that when that phone rings, you have impact stories and data to share.
I’m happy to share my experience with peers and partners looking to drive impact in climate and resiliency finance. Let’s talk.