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Public Welfare Investments Foster Solar Energy Development
Barry Wides, Deputy Comptroller, Community Affairs, OCC
National banks use their public welfare investment authority to invest in facilities that generate solar power, making them partners in the effort to increase the use of renewable energy. This partnership benefits communities as well as banks by
- providing financing for “green” renewable energy projects.
- creating critically needed jobs for a range of worker skill levels in local communities.
- bringing energy savings to consumers and businesses.
National banks can play a leadership role in spurring investment in energy-saving projects. Banks have authority under 12 USC 24(Eleventh) and 12 CFR 24 to make public welfare investments that primarily benefit low- and moderate-income individuals and low- and moderate-income areas, other areas targeted by a governmental entity for redevelopment, or in assessment areas where a bank would receive consideration of “qualified investments” under the Community Reinvestment Act. This allows banks to invest in and provide equity for affordable housing and other real estate development, small business, and revitalizing or stabilizing a government-designated areas.
Banks that make public welfare investments help themselves as well as the communities they serve. In addition, banks investing in solar energy-producing facilities can benefit by taking advantage of often-generous state and federal tax incentives or grants. These benefits make solar energy investments by banks a fitting topic for this issue of Community Developments Investments.
Rising energy costs and growing concern about global warming are spurring interest in renewable-energy production. In 2009, 8 percent of total U.S. energy consumption came from renewable energy sources, according to the U.S. Department of Energy.1 Although solar power represents only a small portion—just 1 percent—of the renewable energy generated in the United States, solar power generation is growing. From 2009 to 2010, solar power generation grew 48 percent, with most of the increase occurring in California and Nevada.2
Photovoltaic or solar cells convert sunlight into electricity. When converted to thermal (or heat) energy, solar energy can be used to heat water or buildings. Individual photovoltaic or solar cells can power small appliances, be arranged in panels to power buildings, or be assembled as power plants that generate electricity.
Although initial costs can be high, many developers are using solar energy technology and green building techniques to reduce future energy costs and decrease environmental impact over the life of the building.
National banks making solar investments may have in-house experts who evaluate and underwrite financing structures using these tax credits. These experts may help banks take advantage of the considerable resources, tax credits, and grants directed at spurring the renewable energy generation. The American Recovery and Reinvestment Act of 2009 included more than $80 billion for renewable energy projects and related energy saving initiatives, further spurring the development and use of alternative energy sources.
This issue of Community Developments Investments features articles describing the innovative investments national banks have made in solar energy-producing facilities using their public welfare investment authority. National banks are providing critical leadership and bringing creativity, expertise, and renewable energy financing to help communities. This issue of Community Developments Investments serves as a guide for banks interested in how renewable energy could fit in their overall investment strategies.
1 U.S. Energy Information Administration 2009 data on renewable energy consumption in the nation’s energy supply.
2 U.S. Energy Information Administration January 2011 and 2010 data on net generation from solar, by census division by sector.
Using the Public Welfare Investment Authority to Make Solar Energy Investments
National banks may use the public welfare investment authority to invest directly in solar facilities or indirectly through a fund backed by interests in solar energy-producing facilities—if the investment meets the OCC’s public welfare requirements. Public welfare investments are governed by 12 CFR 24, the OCC’s regulation on community and economic development entities, community development projects, and other public welfare investments. Typically these investments in solar facilities are carefully structured to comply with legal requirements necessary to take advantage of available tax credits and grants.
The public welfare investment authority requires that a bank’s investment be designed primarily to promote the public welfare, such as by providing housing, services, or jobs. A bank’s investment must primarily benefit low- and moderate-income individuals, low- and moderate-income areas, other areas targeted by a governmental entity for redevelopment, or in assessment areas where a bank would receive consideration for “qualified investments” under the Community Reinvestment Act.
Additionally, the investment must not expose the bank to unlimited liability. Also, the bank’s aggregate investments under the public welfare investment authority cannot exceed 5 percent of its capital and surplus, although this limit may be increased up to 15 percent with prior approval from the OCC.
For questions about whether specific investments may qualify as public welfare investments or for information on the process for notifying the OCC about these types of investments, contact Karen Bellesi at (202) 874-4930.
For more information, visit the OCC public welfare investment Web Resource Directory.
Does ‘Volcker Rule’ Affect Public Welfare Investments?
Section 619 of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, sometimes referred to as the “Volcker Rule,” has provisions that limit some types of private equity investments by national banks.3 The provision explicitly exempts public welfare investments made by national banks under 12 USC 24(Eleventh).
The statute provides that an exemption does not apply if the public welfare investment would
- involve or result in a material conflict of interest between the bank and its clients, customers, or counterparties;
- result, directly or indirectly, in a material exposure to “high-risk assets” or “high-risk trading strategies”;
- pose a threat to the bank’s safety or soundness; or
- pose a threat to U.S. financial stability.
Together, the OCC, the Federal Deposit Insurance Corporation, and the Federal Reserve Board are defining the main terms in the statute (including material conflict of interest, high-risk asset, and high-risk trading strategy) in joint regulations to be issued in the coming months.
The provisions of the Volcker Rule become effective 12 months after the agencies issue implementing rules or July 21, 2012, two years after Dodd-Frank became law, whichever comes first.
3 See Section 619 (d)(1)(D), Public Law No. 111-203, July 21, 2010.
For More Information About Solar Investments
Public Welfare Investment Community Development Investments Fact Sheet
Solar Energy Investment Tax Credits and Grants Fact Sheet
Community Development Investment Letters
Precedent-setting public welfare investments in energy investment tax credit facilities financed with solar energy tax credits:
Community Development Investment Letter #2009-6, February 2010
Community Development Investment Letter #2009-1, November 2009
Community Development Investment Letter #2008-1, August 2008
Section 1603 Program: Payments for Specified Energy Property in Lieu of Tax Credits
DSIRE, Database of State Incentives for Renewables & Efficiency
North Carolina State University, N.C., Solar Center
Comprehensive source of information on federal, state, local, and utility incentives that promote renewable energy and energy efficiency
U.S. Department of Energy
Information about federal programs involving solar energy
U.S. Energy Information Administration
Statistical information and analysis regarding renewable energy, including solar energy
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