Connecticut Green Bank Drives Energy Resiliency Investment
The challenges and opportunities of financing microgrids

by Genevieve Sherman, Acting Director of Commercial and Industrial Programs, Connecticut Green Bank;
and Alexandra Lieberman, Assistant Director of Clean Energy Finance, Connecticut Green Bank

Through the nation’s first state green bank, formed by Public Act 11-80 in 2011, Connecticut is pioneering clean energy finance innovations. The goal of the Connecticut Green Bank is to leverage relatively small amounts of public capital with private capital to deploy clean energy at scale. In 2013, the Green Bank stimulated more than $220 million in clean energy investments, created nearly 1,200 jobs, and spurred a record amount of clean energy projects, which over their life cycle will prevent more than 250,000 tons of greenhouse gas emissions.1 For every $1 of ratepayer funds, $10 of private capital was deployed.

The Green Bank’s success was accomplished through the creation and operationalization of new financial products and tools, such as the Smart-E Loan, Commercial and Industrial Property Assessed Clean Energy (C-PACE) financing, and the Connecticut Solar Lease fund. These products all leverage private capital from a range of sources, including local banks and credit unions, national commercial banks, and specialized structured finance firms, and deploy them with relatively longer terms and lower rates to the borrower. The Green Bank is now turning its efforts toward financing strategies for energy resiliency technologies in particular electric vehicle charging stations, food waste energy systems, and microgrids.

In 2011, Connecticut suffered two major storms within weeks of one another—Tropical Storm Irene in late August, followed by an early October snow storm—that each left more than 800,000 customers without power for several days.2 In July 2012, just after Governor Dannel Malloy signed Public Act 12-148 into law to enhance emergency preparedness and response, Connecticut and other northeastern states were rocked by Superstorm Sandy. The impact of the storms in 2011 and 2012 were the impetus for putting energy resiliency and reliability at the core of Connecticut’s current energy policy.

These policy efforts highlight microgrids as a promising technology strategy to improve the energy resiliency of critical facilities. Connecticut defines a microgrid as “a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid and that connects and disconnects from such grid to enable it to operate in both grid-connected or island mode.”3 The use of on-site generators and the ability of the microgrid to disconnect, or “island,” from the larger grid and run autonomously is how microgrids provide additional reliability and resiliency to the facilities they serve.

In 2012, the state created a microgrid pilot program designed to support the funding of microgrids that serve critical facilities such as municipal buildings and fire stations. In its first year, the state awarded grants totaling $18 million to nine microgrid projects to provide financial assistance for interconnecting to the grid. The legislature then authorized an additional $30 million in funding for the program, $5 million of which was awarded to two additional microgrid projects in 2014.4 The pilot program and other acts championed by the governor and the state legislature, such as new regulations for third-party-owned and -operated microgrids, have helped make Connecticut one of the few places in the nation where commercially driven microgrids implemented outside of campus-style environments are legally, technically, and financially feasible.

Unfortunately, only one of the now 11 proposed projects pledged grant funding from the state has been implemented because many of the projects have struggled to attain an economic model sufficient to secure financing. Animating a viable business model and financing strategy for microgrids has also become a central question for the Green Bank’s FY2015–2016 strategy.

Charged with driving investment in clean energy, a central challenge for the Green Bank is to design business models and financial structures for clean energy projects that are both cost effective for ratepayers (e.g., annual repayment of project costs is less than or equal to current annual energy costs) and attractive to investors (e.g., where revenue less cost over time is sufficiently valuable to attract affordable capital needed to build the project). The Green Bank has approached this challenge by focusing on three questions: (1) What is the business model?, (2) What is the financing strategy?, and (3) What partnership between Green Bank and third-party capital could make microgrids a cost-effective investment?

Business Model. The Green Bank mapped all available sources and uses of incentives, subsidies, and capital for clean energy distributed generation technologies typically found in microgrids and found that the combined costs of new on-site generation, new grid infrastructure, and improvements to existing grid infrastructure to accommodate microgrids renders this technology option expensive. Although recent changes, such as the expansion of a virtual net-metering tariff to microgrid-interconnected facilities, will drive new revenues to microgrids, additional sources of revenue will be needed—for example, through participation in demand response or ancillary services markets, or through new forms of payment for capacity and energy reliability services. Like distributed generation technologies generally, it will be important that the unique benefits (as well as the costs) of microgrids be appropriately defined and compensated in the market.

Financing Structure. Microgrids present a thorny challenge for structuring a scalable, low-cost financing structure. First, they combine multiple energy technologies into a single project, while existing financial structures focus on individual technologies. Piecing together multiple financing structures for a single project adds complexity and cost. Second, through their use of multiple technologies, microgrids combine multiple revenue sources, not all of which can be monetized by microgrid participants. For example, solar and fuel cell technologies are eligible for a federal investment tax credit, but a municipality or nonprofit facility—a likely critical facility in a Connecticut microgrid—is tax exempt and cannot readily monetize that incentive. In a similar fashion, existing financing structures will focus on specific types of counterparties, with tax-equity structured funds servicing public and tax-exempt facilities, and separate loan types serving commercial facilities. This diversity of facility types in microgrids presents the challenge of multiple financial credits. Although a rated municipality may be an attractive counterparty for an investor, the neighboring gas station and pharmacy in the microgrid are unrated and may have poor credit quality. Currently, each microgrid requires a custom-fit solution based on the specific technologies, hosts, and off-takers. Again, complexity increases the cost of financing.

Partnerships and Role of the Green Bank. Much of what the Green Bank provides is risk mitigation for private capital providers. Many available financial tools such as equipment warranties, performance guarantees and energy saving insurance, PPAs, or PACE structures can mitigate various risks for clean energy projects. The role of green banks, however, can provide credit enhancements (such as loan loss reserves, subordinated and/or below-market debt, equity, and timeliness reserves) that lower the overall risk and thus the cost of capital for clean energy projects, causing a virtuous cycle of lower costs and more deployment, and driving down costs even more. Additionally, because the Green Bank participates in the structures, the ratepayer funds return to it for redeployment, causing a second virtuous cycle.

To date, the Connecticut Green Bank has provided guidance to the market for financing microgrids and has introduced two new financial structures for microgrid projects. First, the Green Bank led an effort to expand C-PACE financing to microgrid infrastructure. This legislative adjustment to the C-PACE statute was signed into law in July 2014. C-PACE provides 100% financing for energy upgrades and is secured by a senior benefit-assessment lien on the improved building, mimicking a sewer or sidewalk assessment. Microgrid developers can now place a C-PACE benefit-assessment lien on any property connected to a microgrid to secure that property’s share of the project costs. The investment is repaid through a special assessment item added to the building owner of record’s property tax bill over a 20-year period. Because the investment is part of the property tax bill and therefore secured by the property, the financial risk is significantly decreased. Additionally, because the obligation transfers to any future owner, the value of the property and the upgrades can partially mitigate the credit profile of any given property owner.

For projects that cannot make use of C-PACE, the Green Bank has also carved out a piece of its balance sheet to make flexible, strategic investments in microgrid projects that leverage third-party capital. The Green Bank also released a rolling request for proposal to solicit interest from capital providers and has established a stable of capital providers interested in microgrid projects in Connecticut. With strong legislation and innovation in financing strategies and partnerships with external capital, Connecticut is poised to see major growth in microgrids implemented in the state in the coming years.

1 Clean Energy Finance and Investment Authority. (2014). 2013 annual report. Retrieved from
2 Joe McGee, et al. (2012). Report of the two storm panel. Retrieved from
3 Microgrid grant and loan pilot program to support distributed energy generation for critical facilities. CT Gen Stat § 16-243y(a)(5) (2012).
4 Connecticut Department of Energy & Environmental Protection. (2014, December). Microgrid grant and loan program. Retrieved from