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Impact Insurance to Decarbonize Low-Income and Disadvantaged Communities

While there is an urgent need to decarbonize our economy for climate change-related reasons, decarbonization also provides health benefits, community resiliency, financial savings, and economic growth. The benefits of clean energy are too often concentrated in already wealthy populations or the largest corporations.

The Inflation Reduction Act appropriated $27B, which is now managed via the EPAs Greenhouse Gas Reduction Fund (GGRF), to ensure that distributed energy resources are fairly and equitably distributed.

Impact Insurance, as described here, is the most efficient use of taxpayer dollars to achieve climate justice and decarbonization objectives.

Three town homes in the daytime

Energetic Insurance was founded with the recognition that credit is often a barrier in clean energy finance. In fact, a “bankable offtaker” is often the most sought-after element of project finance whether that is solar, energy efficiency, battery power, or a combination within a microgrid. These are mature technologies that have been de-risked through field performance, but not deployed because financing entities perceive that the buyer is too risky. Our insurance programs have enabled $500M of project value across solar, energy efficiency, and microgrid projects across 1400 commercial sites in nearly every state in the country.

Energetic actually lowers the overall cost of capital to projects by allowing for advantaged terms from banks.

Our efforts provide a model for how insurance can expand deployment using scalable commercial contracts. Our experience informs our proposal that a portion of the funding from the EPA GGRF is used to capitalize a non-profit insurance company. There are 3 principles, described below, that further explain the advantages of this structure.

(1) Funding exists by creating the right risk profile

The funding required to reach these communities, in many cases, already exists within CDFIs, Credit Unions, regional banks, etc. but is held back by certain risks. We can help these lenders put funds to work. There is no shortage of capital if we can create the right risk profile. Insurance is used in every industry and is often required by lenders for risks that they choose not to take on. Note that when it comes to clean energy, there are new and esoteric risks that may require new types of insurance.

(2) Using scalable commercial contracts

There have been many pioneering efforts by green banks, catalytic capital, and philanthropic sources. These efforts have been essential to get early projects built. However, there are challenges in the timeline, complexity, and replicability of these structures. Loan loss reserves (LLR), subordinated debt, or concessional lending are great but may add complexity and make it difficult for the secondary market to participate. Insurance contracts are much more standardized and recognized in global capital markets as trusted mechanisms for risk transfer.

(3) Crowding in Private Sector Capital

Our proposal will go well beyond just the insurance funds. We will hold the grant funds in reserve and fund ecosystem development work out of the earned interest. Our programming will include the following:

  1. Community engagement for top-of-funnel project development: Many individuals, businesses, and communities never get the proposal in the first place. We have built technology tools to help pre-screen sites that have been left behind.

  2. Local Developer Training: Local project developers are best positioned, and we want to help them learn the ins and outs of project finance.

  3. Local Underwriter Training: Within the banks and CDFIs to help them underwrite projects and how to utilize insurance (if needed, it's even better if they don't!)

  4. Workforce developments: We have even contemplated bonding services for local electricians to help them get the insurance coverage they need to work on solar or energy efficiency projects.

Why Impact Insurance Works: Impact insurance is explicitly designed to address the needs of low-income individuals, vulnerable populations, and emerging markets. It provides financial protection and support to those most at risk and lack access to traditional insurance options. The primary goal of impact insurance is to promote social and economic resilience by reducing the financial vulnerability of disadvantaged communities.

We have been writing about impact insurance since 2020 as a method to bridge financial technology and lead the clean energy transition. As a nonprofit vehicle, impact credit insurance, as an entity, is an untapped resource for low-income and disadvantaged communities to acquire funding for those who have traditionally not been able to receive it.

Impact insurance considers the unique challenges underserved populations face and tailors insurance products to meet their specific requirements. These insurance solutions typically offer affordable premiums, flexible payment options, simplified processes, and coverage for various risks relevant to the target audience. Among its accessibility, affordability, and capacity to enhance financial literacy impact, insurance mitigates risks specific to communities.

Impact insurance addresses risks relevant to vulnerable communities, such as health emergencies, crop failure, natural disasters, disability, or death. Providing financial protection against these risks helps individuals and communities recover and rebuild after adverse events.

An impact credit insurance vehicle, armed with funding from the federal government, can unlock private capital otherwise withheld from the market due to perceived risk. Private capital is often withheld due to the perceived riskiness of the project. Impact insurance can bring that private to market, bridging the gap between private capital incentives and federal programming to communities in need.

Energetic is currently backed by some of the largest insurance companies in the world, with funding from leading VCs and grant awards from DOE, MassCEC, and NYSERDA. From an initial balance sheet of $1B under the GGRF grant, we can further amplify by crowding private sector insurers behind us, as we have in our traditional business.

Upon recipe of the federal grant, funds will be used as reserves against risks holding back clean infrastructure deployment as we will continue seeking methods to aid in the clean energy transition. We are looking for partners (developers, lenders, and community leaders) who focus on low-income and disadvantaged communities to join our initiative. Partnerships with community leaders and talent that can help build out programming focusing on DEI are especially encouraged to reach out.


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