Strategies to Finance Large-scale Deployment of Renewable Energy Projects: An Economic Development and Infrastructure Approach

December 5, 2011

by Lewis Milford, Ross Tyler, and Jessica Morey, Clean Energy Group

This report was prepared by Clean Energy Group under a commission by the IEA-RETD.

Making the switch to large scale renewable energy systems will require the significant investment with magnitudes in trillions of dollars. The necessary transformation is on the scale of the information technology revolution of the past three decades.

Renewable energy investments are on a growth trajectory, reflected by $ 243 billion of globally CAPEX in 2009. However, these recent figures do not reflect international consensus among many policymakers on the future levels of investment required to finance the large scale deployment of renewable energy technologies to address climate change risks. Such commitments have been made all the more difficult in the current financial crisis.

However, the level of capital is available with new, conventional investors, but only on terms that are within their investment parameters. Governments have an important role in providing the right conditions. Simply scaling up of public subsidies is not a viable solution.

Policies should specifically reduce the technical, institutional, policy risks associated with renewable energy technologies and, at the same time, increase the profit potential of these investments. An economic and infrastructure systems-approach is required.

The report highlights the menu of options for policy and decision makers, focusing on the years up to 2015. Some major recommendations are:

- Build local markets for a country’s renewable energy products.
- Fill identified gaps in industry value chains such as manufacturing support or workforce development.
- Institutionalize – e.g. with an investment bank - the functions to manage the economic development, finance mechanisms, and technology innovation.
- Create investment incentives that will attract investments from new pools, e.g. corporations.
- Consider creation of ‘green bonds’.
- Increase private and public research and development in renewable energy technologies.
- Combine feed-in tariffs (FITs), national tax credit schemes, and mandatory renewable procurement for utilities into successful instruments.
- Public procurement of renewable energy and mandatory use of renewable technologies in new buildings are possible ‘quick wins’ in policies.
- Establish the ‘emerging technology renewable auction mechanism’ (ET-RAM) that requires local utilities to procure renewable energy project outputs from specific technology classes. This would be a driver for innovative renewable energy technologies to enter the market.