3 ways public and private sectors can finance a green recovery

Every level of government has a role in executing Canada’s climate action plans. In fact, municipalities’ success at environmental initiatives are key to the country’s chance of meeting its climate commitments and securing a green recovery. Yet for this to work, the public and private sectors must work together.

On December 1, 2021, Jonathan Frank, VCIB’s Head of Clean Energy, participated in a great discussion as part of the MaRS Climate Impact conference. This session, moderated by Andrew Chisholm, Corporate Director at RBC, covered how the public and private financial sectors can come together to support municipalities in their strategies to combat climate change. Joining Frank as panelists were Lisa Helps, Mayor of Victoria, and Marie-Claude Bourgie, Executive Director at Greater Montreal Climate Fund.

Read three key takeaways from the discussion below:

1. Using innovative financing to transform Canada’s energy grid

An innovative model that mobilizes both public and private capital while helping to aggregate smaller municipal-scale projects is something that’s being developed at MaRS, the municipal impact investment fund. “It draws on a successful program in the UK that pools private and public capital and is able to drive that capital into projects that meet key objectives around improving resilience and reducing emissions, mitigation, and adaptation” says Frank.

Lisa Helps, Mayor of Victoria, continued; “The municipal impact investment fund gives both the private and public sectors a stake in its creation, allowing them to test it out. That will build comfort, to allow our staff and colleagues at the elected level to step back once they’ve seen it work. And it will work, because they’ve been doing this in the UK for 15 years. We’re not inventing something new.”

Historically, a lack of investment in clean energy projects has been a huge challenge when it comes to moving the needle forward on climate commitments. “A lot of financial markets are not set up to invest in much-needed energy projects,” said Frank.

Why? It’s often because clean energy assets are still considered somewhat novel despite being commercially proven technologies—and that makes it harder to bring the money in. But there are often other factors at play.

“These projects are usually very long-term in nature, their revenues are based on estimated performance, or they’re simply too small to attract big financiers,” continued Frank. “These challenges and more combine to a lack of financing to get some clean energy projects off the ground.”

In many cases, it’s difficult for project developers and building owners to know if they’ll have the financing they need to start developing the projects in the first place. Innovative financing and creative mobilization of public and private capital can help solve the financing challenge.

For example, VCIB recently partnered with Canada Infrastructure Bank (CIB) to finance the largest wastewater energy transfer project in the world. To move this project forward, CIB was able to help de-risk and improve the project’s economics.

Getting this first project off the ground will serve as a valuable showcase for other municipalities and building owners to start replicating and scaling up this low carbon energy solution.

“This type of project financing has typically only been available to large utility scale infrastructure projects,” said Frank. “But by bringing this approach down to community scale, or distributed generation scale, we can give those types of asset classes access to the same kind of non-recourse-based lending.”

2. Changing the narrative

We’re seeing every major Canadian financial institution make strong commitments to net-zero portfolios. But the key to ensuring that clean energy investments follow those commitments is rewriting the story surrounding the transition to a net-zero economy.

“We need to change the narrative about this being a transition that has downsides and trade-offs, to one that’s about inclusive economic prosperity and social resilience in the face of a changing and increasingly unpredictable world,” said Frank.

Financial institutions and investors need to see that solutions to the climate crisis also present a multi-trillion-dollar opportunity, and Canada must be a part of this global mega-trend. The longer businesses wait to be a part of this transition, the more their balance sheets and portfolios are going to feel the effects of climate change, and the number of stranded assets will grow.

Marie-Claude Bourgie, Executive Director at Greater Montreal Climate Fund, continued: “The best way to start change is to design models that can be recreated.” For example, “putting the right people at the table to design these projects and then adding concessional financing to leverage private sector capital… We’re trying to recreate [this model] to support property owners to be able to finance changing their systems.”

3. Empowering businesses and residents to adopt clean energy

“City emissions contribute only 1% of emissions in our community. 99% are from industry and residents,” said Mayor Helps. “We need to leverage mechanisms to help businesses and residents contribute to climate action.”

By helping organizations and residents adopt clean energy, public and private financial institutions can play a major role in the transition to a net-zero economy. This means supporting the creation of bankable projects at all scales, from individual homes to large buildings.

This year, as part of its effort to provide flexible financing solutions, VCIB developed Canada’s first solar-oriented loan program for organizations looking to kickstart their own solar projects. VCIB’s Commercial Solar Financing Program provides Canadian businesses and non-profits up to $10 million to install solar panels on their properties, supporting Canada’s transition to a net-zero grid.

It’s important to consider that “although solar energy has become increasingly cost effective, behind-the-meter commercial solar has had a slower adoption in Canada, and this is partly due to the lack of appropriate financing,” said Frank, in another conversation earlier this year. “Specialized financing is essential to properly support the growth of Canada’s solar and clean energy industry as a whole.”

While solar energy is perhaps more well known, one of the areas where we’ve seen significant growth is geothermal heating and cooling for new-built multi-unit residential buildings. Practical financing solutions make it easier for condo or building developers to choose fossil-free heating and cooling solutions.

The global growth of solar energy has proven that if we can deploy more of a technology, then the costs for that kind of technology will come down, and more people will start believing in it – and that’s the kind of positive feedback loop we need to accelerate right now.

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As the session came to a close, Chisholm highlighted the need for collaboration to get us to inclusive low-carbon prosperity. “We have the tools and the expertise in Canada.” Let’s find the public-private formula to make it work.

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Visit our Clean Energy page to learn more. If you’re seeking financing for a clean energy project, get in touch.

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