Hawaii passed a landmark bill, SB 1087, that will allow the state to create and issue a “Green Infrastructure Bond.”
The bill’s intent is to use this low-cost capital to expand access to affordable clean energy for all of Hawaii’s consumers, acknowledging that, “Existing programs and incentives do not serve the entire spectrum of the customer market, particularly those customers who lack access to capital or who cannot afford the large upfront costs required, thus creating an underserved market.”
The state will issue the bonds and then repay bondholders with funds collected from a utility surcharge, providing a secure form of repayment. The framework enables a portion of the existing Public Benefits Fee, currently charged to customers, to be redirected so that overall customer bills are not expected to increase.
Raising low-cost capital secured by utility surcharges is a tried and true structure. Often referred to as rate reduction bonds (RRB), this financing enables utilities to recover the costs of stranded or uneconomic assets over time, at a funding rate lower than the utilities’ cost of funds. To date, U.S. utilities have issued over $40 billion in RRBs.
What sets Hawaii’s Green Infrastructure Bond apart from other RRBs is the fact that the low-cost capital will exclusively provide financing for distributed, clean energy projects like installing solar panels and energy-efficiency upgrades. Providing this funding, while at the same time laying the foundation for a successful on-bill financing program, results in a powerful combination that will expand access to underserved markets.
Through the deployment of this innovative program and financing structure, Hawaii can collect performance data to help private capital evaluate the opportunity to participate. Ultimately, scalable private capital would be able to offer clean energy financing even further down the credit spectrum, providing the upfront costs that would enable widespread adoption of clean energy.