Gov. Andrew Cuomo is opening a new bank—and dollars aren’t the only thing about it that’s green.

The New York State Energy Research and Development Authority sought approval from the state’s Public Service Commission last month to allocate public funds to start a $1 billion “green bank,” which Cuomo hopes will grow the state’s renewable energy economy into a self-sustaining marketplace. The petition seeks to appropriate an initial $165.6 million in capital from a pool of money derived from ratepayer fees on utility bills reserved for renewable energy and energy efficiency projects around the state.

The commission isn’t expected to make a decision until the end of the year, and the details of the initiative have yet to be filled out. However, if the green bank is approved, it is not supposed to be just another subsidy program.

“The green bank is intended to focus in on areas where there are gaps in financing, where a company’s progress with customers is limited by the lack of available financing, not by the cost of financing,” said Richard Kauffman, Cuomo’s newly appointed energy czar and former senior advisor to then United States Secretary of Energy Steven Chu. “It’s not necessary to provide a subsidy in these parts of the market, because the problem isn’t that they’re not economic; it’s that they’re not financeable.”

The bank aims to fill these gaps by partnering with financial institutions and encouraging them to make loans to renewable energy companies by enhancing the credit profile of the transaction, for example. (This is in contrast to Connecticut’s already established green bank, which makes loans directly to the companies themselves.) If the market matures enough to have the confidence of private banks, the green bank will step aside and look to address gaps in other sectors.

And unlike subsidy programs, which dispense single servings of cash on a repeated basis and which are subject to changes in the tax structure from year to year, the green bank is projected to make a return on investment that could lead to sustainable growth in the industry and in the bank itself.

“We are building something that from a financial point of view is something that’s been done in other markets but has not been broadly applied yet in the clean energy area,” Kauffman said. “For instance, in the realm of the use of capital markets, credit cards, auto loans, aircraft engines, aircrafts, all of that is done in the bond market now.”

The program isn’t meant as a replacement for subsidy-based initiatives, but rather as an additional tool in the overall effort to bring maximum efficiency to energy customers, along with the development of renewables. Since the 1990s New York residents have been paying on average a few extra dollars a month toward these efforts on their utility bills. According to Jackson Morris, a senior policy advisor at the Pace Energy and Climate Center, for every dollar invested, ratepayers have experienced between three and five dollars in benefits from these programs over time.

“It’s important to recognize that they’re not changing or taking money away from these programs,” Morris said. “All they’re doing is reallocating a portion of it. The hypothesis behind the green bank is that you can secure more megawatts of renewables and efficiency per ratepayer dollar that’s invested.”

Morris said that while the Climate Center supports the concept, he would have to wait for more details to materialize before offering a thorough analysis. But so far he agrees with the approach, which has included extensive interviews with market players to understand where gaps in financing exist.

“This is not a silver bullet,” Morris said. “There are certain sectors where they could go to the bank right now and get financing … but in other sectors that is a problem. And we’re confident that the folks behind the green bank and at NYSERDA are listening to stakeholders and thinking this through. They’ve made it clear that they do not want to create a product that the private sector already provides.”

The initial capital investment will actually be just over $210 million, with an additional $44.7 million coming from the sale of carbon allowances through the Regional Greenhouse Gas Initiative, the cap-and-trade program New York participates in along with eight other states. Since NYSERDA controls these funds, they were not included in the petition to the Public Service Commission.

According to Kauffman, market gaps stem from two major obstacles: First, most renewable energy and energy efficiency projects are small enough to be considered below investment grade. Start-up ventures are, by definition, high-risk: slow to grow and prone to failure. From a bank’s point of view, the chance that its loans won’t be repaid is often too high to be worth the gamble.

Second, the renewable energy sector is not yet well established enough to take advantage of bond markets, which involve bundling tens of millions of dollars of projects under one standard contract, and which require tons of data demonstrating the consistency and value of a product or service over time.

“These projects are still being put together on a one-of-a-kind basis, and all the contracts are similar but different, so you can’t aggregate them,” Kauffman said. “And the rating agency needs to rate the bond, but how do we know if enough time has gone by to be sure that the energy savings that were promised are really occurring?”

Kauffman orchestrated what he believes was the first securitization of residential efficiency energy loans earlier this summer, to the tune of $24 million. He hopes the renewable energy market will eventually move into the bond market as other maturing industries have before it.

In 2011 a federal program with loose parallels to the green bank was the subject of negative media attention after the failure of the California-based solar panel manufacturer Solyndra, which received a half-billion-dollar loan guarantee from the federal government before filing for bankruptcy. Although the company’s non-silicon “CIGS” solar cells had originally been touted for their purported ability to produce more energy per rooftop, plummeting prices in silicon made it hard for the company to compete with established manufacturers of traditional panels.

An investigation by The Washington Post found the U.S. Department of Energy’s clean technology program to be thoroughly tainted by political considerations, and reported that the administration stuck with Solyndra even when the forecast looked bleak. However, Solyndra was just one investment in the Department of Energy’s portfolio, and experts are quick to point out that most of the DoE’s investments have done well.

“This was a high-visibility failure, but almost all the other loans they’ve made have been successful and have been repaid,” said Steve Cohen, executive director of the Earth Institute at Columbia University. “If you’re in a high-risk lending situation, as this would be considered, you’re going to lose once in a while.”

A traditional criticism of the public sector financing private companies is that winners are determined artificially—the choices inevitably clouded by political considerations and flawed judgment— instead of letting market selection run its course. But as Cohen sees it, the green bank is simply an extension of the way in which both governments and banks regularly facilitate economic growth.

“You’re not picking winners; you’re making bets,” he said. “When you hold a competition for who gets to build the Tappan Zee Bridge, you’re doing the same thing, in a sense. The idea that only bankers in the private sector know something about how to invest is absurd. There’s a lot of pressure, when you get into these kinds of programs, to succeed. And the pressure comes from the media, which is going to be waiting for the next Solyndra—that’s where the story will be. So you have a big interest in making sure your investments will pay off.”

According to Kauffman, who has spent most of his career in the private sector, NYSERDA is already in the process of identifying investment bankers skilled in risk management to serve on the green bank’s staff, but he isn’t naming names just yet.

And while Kauffman agrees with Cohen that Solyndra’s failure received outsize attention when considered against the overall success of the DoE’s investment portfolio, he has said that New York’s green bank will shy away from Solyndra-like manufacturing investments and focus instead on energy generation projects— that is, projects that involve the propagation of proven technologies rather than developing unproven ones.

“I think the state, in conjunction with the private sector, can more easily evaluate the risks in energy efficiency and renewable energy generation projects, because these are proven technologies, and they are often, in almost every case, backed by some type of contract,” Kauffman said. “It’s a whole different level of risk in evaluating a manufacturing business, because then you have to evaluate the technology, the management, the markets, the competitors, the ability to execute in manufacturing.”

Kauffman offered the example of landing at an airport and seeing factory buildings and warehouses with flat roofs and wondering why all the space is not covered with solar panels.

“Putting solar panels on these rooftops would be economic, but it’s very difficult to get debt financing for an installation of a commercial industrial solar project,” he said. “What I’m talking about is taking a technology that someone else has manufactured and assembling it together to either save or produce energy.”