11.28.2011

The Public Welfare Investment Authority and Solar Development

With all of the recent discussion about the Solyndra fiasco, many of our naturally curious readers have undoubtedly spent some time considering exactly how the government is involved in the developing solar industry. Among the more attention-grabbing ways it is involved would of course be the now infamous loan guarantee system. There are also various tax credit and grant schemes at the federal level as well as locally. However, there are other means by which the federal government has encouraged investment in the solar industry which carry less direct risk.

One of the tools in this multi-pronged approach is the use of regulatory schemes to encourage private investment in solar projects. In other words, in addition to the enticements of tax breaks, the government can also stimulate behaviors by creating loopholes in rules and allowing certain activities which would otherwise be forbidden. One notable example of this approach is provided by the Office of the Comptroller of the Currency (OCC)'s public welfare investment authority.

First a little backdrop. Under the National Banking Act, banks are restricted from making certain types of investments. Typically this would foreclose large investments in developing industries which could be seen as speculative. Solar projects would certainly fall into this category at this time. However, one clause of the Act allows for higher thresholds for investments which encourage the public welfare. Specifically, banks are allowed to:

"...make investments directly or indirectly, each of which is designed primarily to promote the public welfare, including the welfare of low- and moderate-income communities or families (such as by providing housing, services or jobs)."



Under certain circumstances, (specifically with OCC approval), such investments could equal a sum of up to 15% of capital stock paid-in and unimpaired and 15% of the association's unimpaired surplus fund. While this might sound a little complicated, suffice to say that there is potentially a lot of money which could be invested under the parameters of this clause, particularly under an accommodating OCC.

In short, under OCC oversight banks can make significant investments in solar if they can prove that the investments help the community. Though such a claim could undoubtedly be debatable given the specifics of a project and the way the investment authority is interpreted, it is unsurprisingly not a very heavy lift under the current administration (whatever one thinks of the strategy, it is a good example of how ruling parties can impact policy without changing laws if nothing else).

To highlight some success stories, the OCC released a newsletter in July discussing solar investing under the public welfare investment authority. While focused on a banking audience (i.e. the article on getting green projects to qualify for CRA credit), the newsletter also includes some interesting resources and articles that anyone interested in this newsworthy topic might enjoy. The full newsletter can be in .pdf here while individual articles from the document can be found here.

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