Leveraging State Clean Water Revolving Funds to Expand Clean Energy Financing

February 29, 2024

To meet clean energy goals, states will need significant capital. Federal funding from the Inflation Reduction Act and the Infrastructure Investment and Jobs Act will make some of this capital available. States may wish to consider leveraging their state clean water revolving funds to finance even more clean energy improvements. New York and Pennsylvania have used this innovative mechanism to extend the impact of their energy loan programs.

Lawrence Berkeley National Lab’s new technical brief, Leveraging State Clean Water Revolving Funds to Expand Clean Energy Financing, provides case studies of these states’ experiences. The brief:

  • Explains how each state leveraged their state clean water revolving funds,
  • Identifies critical success factors for doing so, and
  • Offers key elements for replicating this model

In New York, New York State Energy Research and Development Authority structured a sale of bonds secured by the repayments from a portfolio of residential energy efficiency loans from its Green Jobs – Green New York Program, with the additional support of a guarantee from the state’s clean water revolving fund (see Figure 1). The Pennsylvania Treasury Department received a direct investment of funds from Pennsylvania’s clean water revolving fund to support the relaunch of the Keystone Home Energy Loan Program.

Figure 1: Structure of the NYSERDA transaction

Figure 1: Structure of the NYSERDA transaction

From our review of these two case studies, the following critical success factors emerged:

  • Reference to preventing atmospheric deposition resulting from the combustion of fossil fuels in the state’s Clean Water Act Section 319 Nonpoint Source Pollution Management Plan, which sets out that state’s strategy for reducing pollution into state waterways.
  • Strong relationships and trust between the clean water revolving fund administrator and the state agency administering the clean energy loan program.
  • Limited funding exposure for the clean water revolving funds—which are generally large and well capitalized—to ensure that any losses experienced by clean water revolving funds would have a negligible impact on the fund’s ability to support core water and wastewater projects.
  • Willingness, on the part of the clean water revolving fund administrator, to innovate and engage in careful analysis to support transaction structuring, and support from state energy partner organizations.

For questions on the brief, please contact Jeff Deason (510-486-5965, [email protected]).

We appreciate the funding support of the U.S. Department of Energy Office of State and Community Energy Programs in making this work possible.