Green banks are innovative public-private or quasi-public institutions supporting the provision of long-term and low-cost financing for clean energy projects (EPA 2015). Green banks are often designed to use seed capital from the public sector to leverage significant amounts of private investment for clean energy projects and to eventually operate under a self-sustaining business model. Green banks are often intended to support technologies or products for which traditional market lending is not yet in place. Thus, green banks can be positioned as a fairly middle-ground policy support for technologies that are not totally reliant on incentives or grant dollars and do offer some payback, but that still need some assistance securing financing.
An important feature of the bank is its nature as a revolving loan fund—distinct from grant-based products, as you get to use the same funding over and over to lend to more projects. Green bank products are normally designed to ensure financial returns to the bank that will allow the institution to be self-sustaining; for this reason, rebates and grants are not normally managed through green banks (EPA 2015, Kennan 2014). Financial incentive products and programs, such as concessional loans, loan guarantees and green bonds can be consolidated and managed under green banks. This allows for greater efficiency and reduced administration costs across the incentives (EPA 2015, Kennan 2014). Green banks can support a multiplier effect for public funds invested in clean energy through attracting significant private investment using minimal public seed capital (Kennan 2014; Lecacheur 2010).
Green banks are also empowered to explore innovative financing approaches. For example, green banks can implement financing mechanisms that may result in greater financial benefit for the private sector investing partner than for the green bank itself (EPA 2015; Kennan 2014). Another role of the banks is to help educate the lending community on emerging technologies. For example, they sometimes provide underwriting support or expertise for specific products to help the rest of the private sector be comfortable with lending for clean technologies. Green banks can be focused on business, consumers, or both.