A Market for Green Infrastructure

A few weeks ago, we wrote a blog about green infrastructure and how it can help cities adapt to weather events and protect our water sources. Most urban areas consist of impervious surfaces, think of the roads, sidewalks, parking lots, and roofs that surround us. These surfaces can get dirty with oil, sediment, and trash. When it rains, the rain collects this debris and brings it to the storm drain that leads back to our clean water supplies. One inch of rain on an acre of land produces nearly 27,100 gallons of water that weighs over 110 tons. That’s a lot of run-off with a lot of debris.

When this runoff goes to a combined sewer system, the system can become inundated and sewer water can spill into the streets. In an attempt to mitigate this issue, the Clean Water Act established the MS4 program that permits areas throughout the United States. MS4 areas require that the sewer and storm systems be separated. These areas are often located in urban centers where there are a lot of impervious surfaces. Green infrastructure, which sinks, slows, and reuses stormwater can decrease runoff and hence the amount of debris that goes to our water supplies.

Despite the benefits of green infrastructure, initial capital costs can prohibit developers from designing and constructing green infrastructure. Washington, DC is just one city mandated in the Clean Water Act to mitigate stormwater runoff. With 43% of the city’s land being impervious, Washington, DC had to do something to incentivize the construction of green infrastructure. If the government was going to retrofit this impervious area with green infrastructure, it would have cost $7 billion when only $10 million of funding is available each year. At first, Washington, DC was planning to regulate that every new project in the city limits would be required to have a certain amount of green infrastructure. But, developers pushed back. In the urban core, there wouldn’t be enough space to build enough green infrastructure. The Department of Energy and Environment (DOEE) went back to the whiteboard and came up with a market solution: the Stormwater Retention Credit Trading Program. This would be the first program of its kind.

Any new construction or renovation projects on .5 acres in an MS4 area are required to build green infrastructure or buy credits to capture 1.7” storm runoff. By installing green infrastructure, the project generates stormwater retention credits (SRCs). Developers can choose to buy SRCs to account for up to 50% of the volume to be mitigated. Each SRC represents one gallon of stormwater retention for a year. The SRCs are bought from SRC generating projects through a marketplace. To provide certainty for developers, the DOEE has established the SRC Price Lock Program that sets a price floor in the SRC market prior to construction of green infrastructure. As for SRC buying, the DOEE provides an in-lieu price per credit. As of 2017, this in-lieu cost was $3.61. But, the market has shown even more favorable SRC prices for buyers.

Between 2014 (when the program was established) and 2019, 600 transactions have occurred on the marketplace with an SRC market price of $1.82. One of the first of these transactions happened between Shaed Elementary School and Westchester, a co-op apartment complex. The co-op apartment complex, as part of an MS4 area, built green infrastructure and sold 11,013 credits generated to the Shaed Elementary School. The School renovation project was nearly 40,000 square feet with 31,000 square feet of impervious surfaces. Instead of paying $100k for building green infrastructure, the developer bought 11,013 credits for $25k. As part of a combined sewer system, the School’s developer didn’t need to build green infrastructure, reflecting the investment shift to green infrastructure in MS4 areas. Along with the sale to the Shaed Elementary School developer, the Westchester sold enough SRCs to generate $70k in income, which can be used for maintenance of the green infrastructure.

While projects can register early on with the DOEE’s Price Lock program, the DOEE certifies projects and awards SRCs at the end of construction. This process results in DOEE certification for up to 3 years of SRCs. The developer or green infrastructure operator/maintainer must maintain retention capacity and pass subsequent inspections for the lifetime of the project.

Since the Stormwater Retention Credit Trading Program was first conceived, other cities have followed suit. Chattanooga, TN and Grand Rapids, MI have established their own stormwater credit program. These programs provide incentives for green infrastructure construction, flexibility to developers, and an income generating source for developers. While the upfront costs of green infrastructure can be daunting for developers, the lifecycle costs of green infrastructure are much lower than traditional grey infrastructure. Green infrastructure can reduce heating and cooling costs and improve the property value. On top of this, green infrastructure can generate income through credit sales with programs like the SRC Trading Program.

Investors are well situated to realize this potential and invest in green infrastructure early. Among the first big investors, Prudential Financial put forth $1.7 million into DC’s green infrastructure. InfraShares is about to announce a new offering where you can realize these benefits as well.

Current Offerings

ESG Clean Energy

ESG-H1, LLC

Preferred Equity Tax Advantaged Offering
506(c) Offering through Infrashares Capital LLC
Offering Size$5,000,000
Minimum Investment$25,000
Preferred Return9%
Renewable Energy

SDC Energy

SDSF Solar Fund IV

A bespoke renewable energy fund that invests in solar projects
506(c) Offering through Infrashares Capital LLC
Offering Size$5,000,000
Minimum Investment$25,000
Target ROI17%
Impact