CRA/PWI Fact Sheet
June 12, 2013Author(s): Paul Holshouser
Wind Energy and the Community Reinvestment Act/Public Welfare Investment Authority
Many wind and financial companies are exploring the link between the green energy sector and the Community Reinvestment Act/Public Welfare Investment Authority (CRA/PWI).
What is CRA/PWI?
The CRA was passed in 1977 and PWI derives from the banking regulatory code 12 CFR 24. Together, these programs help define investment practices that national banks are encouraged to maintain in low and moderate income communities. These programs are designed to help develop local communities or to support the public welfare, as defined by providing jobs and income in under-developed areas. The relevant impact for wind energy is how PWI authorizes national banks to make tax equity investments when they might otherwise be prohibited from doing so, if the investment provides a positive economic/jobs impact for low to moderate income individuals. Wind projects commonly meet this criteria and AWEA is working with the Office of the Comptroller of the Currency to help spread awareness that CRA/PWI criteria may be met through investing in wind projects.
How Would CRA/PWI Relate to Wind Energy?
Banking regulations that restrict equity investments are generally focused on the banking units that serve retail customers, receive FDIC insurance, and have a particular emphasis on “safety and soundness” to protect individuals from bank runs and other risks to the financial system. For smaller and medium-sized banks, this can be the entire organizational structure, whereas large national or global banks have several lines of business. As a result, smaller and medium sized banks may think that investing in wind projects would be disallowed by their regulators.
Wind energy tax credit investing, known as “Tax Equity,” resembles the tax credit investor base of affordable housing except for one key dynamic: wind investors do not have great clarity when energy projects are eligible for CRA/PWI treatment as compared to affordable housing. For this reason, expanded use of the CRA/PWI program holds the promise of inviting new banks to invest in wind projects.
Need for Education, Not a Rule Change
There have been limited cases where CRA/PWI have been applied to wind (and solar) projects, illustrating that many of these energy projects provide good paying, long term jobs for some underdeveloped communities. Industry research suggests that a large proportion of projects could qualify, since low to moderate income rural areas tend to be a focus of wind energy development. This reinforces the common knowledge of the industry because strengthening the local economy has always been at the heart of the green energy value proposition. These situations, where wind energy projects firmly support the mission of the CRA/PWI programs, are the focal point of the industry. Our goal is to spread awareness of the program-no rule changes to either program are necessary.
The Benefits of CRA/PWI
This impact would be meaningful for the wind industry. In the immediate aftermath of the US Financial crisis, wind’s Tax Equity markets contracted sharply as large financial institutions took major profitability hits or went out of business. While the industry has rebounded considerably based on deal volumes and reported market rates, Tax Equity remains an area of concern. Expanding the pool of investors to include all banks instead of just large banks would improve liquidity and share the benefits of renewable energy across the financial sector.