Difference between revisions of "Financial Instruments & Support for Renewable Energy"
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Revision as of 13:52, 12 August 2013
► Back to Financing & Funding Portal
Overview
There are various types of financing instruments that exist to support the scaling up of renewable energy technologies (RETs). The choice and availability of instruments largely depends on if the project is being undertaken in a developed or developing country, and also on the stage of development of the technologies or projects in question. These can be broadly grouped into those that can be used in addressing financing barriers; those used to address the risks of RET investments; and those that address both simultaneously.[1]
Most renewable energy (RE) financing instruments fall under three main categories:
- Energy Market Instruments (Feed-in Tariffs, Premium, Renewable obligations, Tenders, Fiscal incentives);
- Equity Finance Mechanisms (Venture Capital, Equity, R&D Grants, Capital/Project Grants, Contingent Grants);
- Debt Finance Mechanisms (Mezzanine Debt, Senior Debt, Guarantees).[2]
The Need for Renewable Energy Finance
Finance is essential for renewable energy technology (RET) projects in two ways[3]:
- Without funds projects would not materialize, and
- With inadequate financing structure and conditions the disadvantage in competitiveness of RET would even increase, as the costs of electric power utilizing renewable energy technologies are highly sensitive to financing terms.
Demand Profile for Renewable Energy Financing
The typical demand for RE financing has the following characteristics[3]:
- Client: Investors, entrepreneurs or households with limited experience and track-record
- Type of Funds: “patient capital”, either credit or equity or equivalent
- Amounts: Depending on project and RE type, from micro-finance till major project finance
- External Financing Share: High, due to limited own capital
- Maturity: Very Long term
- Interest Rate: Lower Range of the market, due to limited return of investment.
- Security and Collateral: Limited capacity for collateral, preferably on base of cash-flow
This profile sets the benchmark for checking to which extent the local financial system with its funds and instruments can match the needs of RE financing[3].
Financial Instruments for On-Grid Renewable Energy Projects
Financial Instruments for Off-Grid Renewable Energy Businesses in Developing Countries
Further Information
References
- ↑ The World Bank, 2013. Financing Renewable Energy - Options for Developing Financing Instruments Using Public Funds. Available at: http://bit.ly/UFHIPy
- ↑ de Jager, D. et al., 2011. Financing Renewable Energy in the European Market, Brussels: ECOFYS.
- ↑ 3.0 3.1 3.2 Lindlein, P. & Mostert, W., 2005. Financing Renewable Energies - Instruments, Strategies, Practice Approaches, Frankfurt am Main: KfW.
