Why a Cooperative Model for Clean Energy Financing Couldn’t Miss

(above) The Howard Family and their solar PV system

In 2017, Clean Energy Credit Union (“Clean Energy CU”) received its federal charter and became the first “thematic,” online-only, federally insured depository institution with an exclusive focus on clean energy lending. Since then, Clean Energy CU has experienced tremendous success and is influencing both the banking and clean energy sectors. To say that “the time was right” for Clean Energy CU would be an understatement. Understanding its right-out-of-the-gate success requires a look at the underlying market conditions that necessitated its launch.

In the early 2000s, growth in the clean energy sector was driven by improvements in costs, technological innovation, government policy, and public opinion. This growth, however, was outpacing the availability of financing that many consumers and homeowners needed to pursue their clean energy projects. For example, upfront costs for residential solar electric systems, residential geothermal systems, and other green home improvements would typically land in the $10,000 to $50,000 range.

Of the 5,000+ credit unions and 5,000+ banks in the USA, only a handful were paying any attention to the sector. As a result, consumer financing options were typically limited to, and dominated by, VC-backed “fintech” companies such as Mosaic, Sungage Financial, and Dividend Finance, resulting in a dearth of competition to drive down borrowing costs. In contrast, all other segments of the clean energy value chain were laser-focused on reducing costs as rapidly as possible. Financing was the weak link that needed to catch up, and the cheapest form of consumer financing generally comes from federally insured depository institutions (i.e. banks and credit unions), so their entrance into the sector was sorely needed.

Against the backdrop of the clean energy economy were burgeoning concepts like impact investing, conscientious consumerism, and purposeful careers. In that evolving, impact-economy landscape, the need for an “impact banking” or “sustainable banking” option was plain to see. Even so, there were a surprisingly limited number of options for consumers to choose from such as Self-Help Credit Union, Amalgamated Bank, and Beneficial State Bank. Widespread awareness had yet to be raised that where you deposit your money was as important as how you earned, invested, and spent it.

By 2014, there was high, unmet demand for affordable clean energy loans juxtaposed with the dire needed to spark an “impact banking” movement. It was then that a group of volunteers, comprised mostly of clean energy professionals and cooperative enthusiasts, convened to address these needs. Upon learning that credit unions are, by definition, not-for-profit and member-owned cooperatives, they saw that the path forward was not actually a stockholder-beholden bank model whose mission would be subordinated to profit-maximization motives, but rather what would become Clean Energy CU.

The operating model is built entirely around the belief that everyone should be able to participate in the clean energy movement—whether as a user, an investor/depositor, or both.  Clean Energy CU offers a much-needed value proposition: member deposits will earn a competitive interest rate, be federally insured, and be used exclusively to help others pursue their clean energy or energy-saving projects via market-leading, custom-tailored loan terms.

In early 2018, after a three-year federal charter application process, Clean Energy CU opened its virtual doors. As a federally chartered credit union, it is tax exempt and deposits are federally insured, thereby giving it the lowest possible cost of capital. As a cooperative, it is democratically owned and governed by its members, and the primary reason for its existence is to serve its mission and members. An online/mobile-only services platform eliminates the need for expensive brick-and-mortar branches – and their associated overhead – and helps lower operating costs. Its focus on clean energy lending enables critically important market expertise, awareness, and adaptability.

Services were initially limited to savings accounts, clean energy CDs, and an array of clean energy loan products (e.g. e-bikes, EVs, solar electric systems, and geothermal systems). Philanthropic support that included a $1M grant from the William and Flora Hewlett Foundation in 2019 provided a substantial springboard. To date, over 4,500 clean energy loans totaling over $70M have been funded for members throughout the country without a single delinquency or default. Clean Energy CU continues to grow rapidly, and its services now include checking accounts, debit cards, IRAs, and Money Market accounts. Next, Clean Energy CU is planning to offer green home mortgages, credit cards, and clean energy loans to businesses and nonprofits.

Clean Energy CU is also helping 45+ other credit unions learn about clean energy lending via “loan participations.” By selling portions of its loan pools to other credit unions, Clean Energy CU is able to lend far beyond what its start-up balance sheet would allow. Participating credit unions are able to invest their excess cash, diversify their loan portfolios, and gain experience with an exciting new asset class. Seeing firsthand how well these loans perform on their own books helps other credit unions to convince their own boards and regulators that clean energy loans are more valuable and less risky than previously thought, partly because they inherently save borrowers money (e.g. in the form of lower utility bills and fuel costs) which then increases the borrower’s ability and motivation to make their loan payments. In turn, this encourages more credit unions to do their own clean energy lending, thereby spurring competition and driving down financing costs to fund the rapidly growing clean energy movement.

Importantly, Clean Energy CU is committed to JEDI (Justice, Equity, Diversity, and Inclusion). With over half of its members from low-income census tracts, the National Credit Union Administration recognized it as a “low-income designated credit union” in 2020. Loan programs are under development to favor underserved demographics by offering discounted loan terms to low-to-moderate income borrowers and prioritizing both BIPOC populations and those vulnerable to pollution. As a precursor to these new loan programs, Clean Energy CU recently announced a new program with fellow cooperative, Organic Valley, to offer discounted loan terms to help its membership of organic family farms use clean energy, save energy, and save money.

Clean Energy CU may be the first of its kind, but it won’t be the last. New fintech companies and banks with similar goals are popping up like Aspiration, Climate First Bank, and Atmos. Clean Energy CU aims to help grow the clean energy movement and disrupt the entire retail banking sector which is receiving increased pressure to stop its fossil fuel lending and help finance climate change mitigation. With all that it has achieved in just its first three years of operation, we’re incredibly excited about what Clean Energy CU will accomplish next.

Article by Blake Jones, co-founder and volunteer board chair of Clean Energy Credit Union. Blake is also a co-founder of three other cooperatives: (1) Namasté Solar, an employee-owned cooperative; (2) Amicus Solar Cooperative, a purchasing cooperative; and (3) Kachuwa Impact Fund, an investment cooperative and impact investing fund.