Recommended Steps
As A Path Forward To
Finance Large-Scale
Deployment of
Renewable Energy
Projects
Paper Prepared for the International Energy Agency’s
Implementing Agreement on Renewable Energy
Technology Deployment (IEA-RETD)
By
Clean Energy Group
Ross Tyler, Lewis Milford, and Jessica Morey
October 2011
Take-Away Themes from Report
• Existing finance mechanisms alone will not attract
huge quantities of needed new investment capital
• Need to access new capital by reducing risk-toreward ratio, showing potential profit to investors
• New approaches needed to:
1. Combine support mechanisms with new financial
products, possibly under management of national
infrastructure bank
2. Bring together job creation, finance, innovation, and
policies for energy security, national economic recovery,
and sustained competitiveness
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Challenges
• New renewable energy technologies
face higher capital costs associated high
risk, and they compete the entrenched
infrastructure from incumbent fossil fuel
system.
• Solutions to the renewable energy
finance challenge could be found in
tools used by complex, non-energy
sectors, including public and private
approaches
• Consider framing the clean energy
challenge as a 50+ year infrastructurebuilding challenge that will lead to
economic recovery and national
competitiveness.
3
Context
• IPCC SRREN estimates global
renewable energy investment
approximates to
US$600-700 BILLON per year.
• It’s a lot but not insurmountable
when viewed as 1% GDP or when
US corporations have US$1.8
trillion on balance sheets.
• Problem: Investors are in “wait and see” mode,
which could potentially lock-out clean energy.
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Obstacles to Clean Energy Investment
1.
2.
3.
4.
Perceived cost disadvantage to fossil fuel technologies
Intermittent resources require enabling technologies
Limitations of existing transmission grids
Matching funding sources to risk-to-reward profiles
along the clean energy continuum.
5. Real world economic recessions and national deficits
6. Embedded institutional relationships supporting
incumbent fossil fuel technologies and potential to
“lock-out” clean energy technologies.
7. Market failures such as un-priced carbon emissions
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Obstacles to Clean Energy Investment cont’d
Technological and Competitive Risks, when combined
with market failures such as un-priced carbon
emissions, bring investment obstacles including:
–
–
–
–
–
–
Uncertainty over long-term policies
Large upfront asset costs
Restricted lending by banks
High transaction costs
Inflated costs to cover unknown or risk contingencies
Burdening with additional costs from interconnections and
construction facilities (e.g., vessels for offshore wind)
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Overarching Recommendation
Consideration given to strategies
that reflect the following goals:
• Recast public support around a
new, national, economic
development initiative
• Design policies to improve the
risk-to-reward ratio in new energy
infrastructure.
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Well Developed Public Support and
Finance Mechanisms
• Price-Based Instruments
• Quantity-Based
Instruments
• Investment Subsidies
• Financial Institution
Partnership Programs
• Complementary Tax
Measures
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Other Sources of Funding
• Pension funds: P8 Groups with
USD $3.5 trillion
• Sovereign Funds: top 10 with USD
$3.8 trillion
• Insurance Funds: potentially could
be tapped with tax credit
incentives
• Profitable Corporations: making
use of Tax Equity Incentives, e.g.
Google.
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Basis for Plausible Solutions
Incorporate and integrate four kinds
of pubic and private approaches for
clean energy:
1.
2.
3.
4.
Economic Development
Financial Innovation
Innovation Strategies
Enabling Energy Policies
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Clean Energy as a
NEW Economic Development System
• Consider replication of some clean
energy economic development
practices adopted by some leading
nations.
• Some Asian economies place
emphasis on clean energy support as
a new form of national industrial
policy.
• Others are beginning to follow with
concentration on clean energy
industry support,
e.g., UK – Offshore wind.
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Finance
• Institutionalize financing in a planned manner that
builds national/regional clean energy infrastructures vs.
a number of individual projects.
• Existing successful practices found in: European
Investment Bank, Germany’s KfW, Marguerite’s 2020
European Fund for Energy, and now UK proposing the
National Green Investment Bank (GIB):
– Proposed early launch (incubator) to give investor confidence
– Public funds as seed and leveraged (first loss position)
– Free standing run as private enterprise and advises the
government
– Offering products that match investor appetite to sources: e.g.,
higher returns for high risk construction phase with prearranged refinancing of lower returns for O&M phase.
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Finance cont’d
UK GIB is proposing total financial solutions to include
transmission, interconnection, and installation vessels (offshore
wind)
1. Leverage public funding
2. Risk-adjusted to reward ratio
3. Recycle investment funds
4. Explore green bonds
5. Provide or increase export credit assistance
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Innovation
• Support systems innovation along the clean energy value
chain from lab to product development and business
formats to financial models.
• Governments could encourage “open and distributed” innovation to
tap dispersed global talent and to collaborate across institutions.
• Look to “reverse innovation” strategies and partnerships for designing,
creating, and manufacturing clean energy technologies in developing
countries at low cost, and then adapt and export to OECD countries
• Use “Distributed Innovation” to form public-private networks for
accelerated and leveraged R&D, e.g., Marie Curie EU FP7, UK Carbon
Trust Wind Accelerator, and US SEMATECH
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Enabling Energy Policies
Focus on policies that support scaling up existing
technologies and new breakthroughs that contribute
to achieving national clean energy goals.
1. Scale-up of Existing Technologies
2. Support Emerging Technologies
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Conclusion
• This is the time to apply the critical knowledge gained over the
last two decades in order to attract step-change finance for
the accelerated large-scale deployment of renewable energy
projects.
• Need to consider it as national/regional, long-term, infrastructure building exercises vs. series of un-related individual
large projects.
• Public leaders tempted with cut-backs might consider alternative of policies and institutions to increase public-funding
leverage to target and unleash the large pools of private
capital.
• The suite of policies should align and integrate strategies for
creating a new clean energy infrastructure and a robust
economy with long-term job generation, improved and lower
cost technologies, better climate, energy security, and raised
national competitiveness.
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Contact
Ross Tyler – rtyler@cleanegroup.org
Lewis Milford – lmilford@cleanegroup.org
Clean Energy Group
50 State Street, Suite 1
Montpelier, VT 05602 USA
Tel: 00 1 802 223 2554
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