When investors are cautious about taking on these risks, it drives up investment costs and the difficulty in accessing finance is a barrier to renewable energy project developers. Contributing factors include a lack of information and experience among investors and project developers, involvement of smaller companies and projects and a high proportion of up-front costs. Grid access and grid infrastructure is also a major barriers to developers, because they are not certain they will be able to sell all the electricity they generate in many countries, during project development.
3 3.2.2 how to overcome investment barriers for renewable energy
To see an Energy [R]evolution will require a mix of policy measures, finance, grid, and development. In summary: • Additional and improved policy support mechanisms for renewable energy are needed in all countries and regions. • Building confidence in the existing policy mechanisms may be just as important as making them stronger, particularly in the short term. • Improved policy mechanisms can also lower the cost of finance, particularly by providing longer durations of revenue support and increasing revenue certainty.44 • Access to finance can be increased by greater involvement of governments and development banks in programs like loan guarantees and green bonds as well as more active private investors.
The sometimes higher cost of renewable energy relative to competitors is still a barrier, though many are confident that it will be overcome in the coming decades. The Special Report on Renewable Energy Sources and Climate Change Mitigation (SRREN) identifies cost as the most significant barrier to investment43 and while it exists, renewable energy will rely on policy intervention by governments in order to be competitive, which creates additional risks for investors. It is important to note though, that in some regions of the world specific renewable technologies are broadly competitive with current market energy prices (e.g. onshore wind in Europe and solar hot water heaters in China).
• Grid access and infrastructure needs to be improved through investment in smart, decentralised grids. • Lowering the cost of renewable energy technologies directly will require industry development and boosted research and development. • A smoother pathway for renewable energy needs to be established through planning and permit issues at the local level.
figure 3.4: key barriers to renewable energy investment
BARRIERS TO INVESTMENT
Confidence in policy
Lack of policy
Access to finance
Grid access Electricity market
Utilities Lack of existing tech.
Price / cost
Planning & permits
Lack of R+D
Land availability
Govt. RE policy & law
Lack of info. & exp.
Nat. economy & governance
Financial structure
Access to tech.
Financial crisis
Lack of skilled labour
ROI for RE Project & industry scale references 42 SOURCES INCLUDE: INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE (IPCC) (2011) SPECIAL REPORT ON RENEWABLE ENERGY SOURCES AND CLIMATE CHANGE MITIGATION (SRREN), 15TH JUNE 2011. UNITED NATIONS ENVIRONMENT PROGRAMME (UNEP), BLOOMBERG NEW ENERGY FINANCE (BNEF) (2011). GLOBAL TRENDS IN RENEWABLE ENERGY INVESTMENT 2011, JULY 2011. RENEWABLE ENERGY POLICY NETWORK FOR THE 21ST CENTURY (REN21) (2011). RENEWABLES 2011, GLOBAL STATUS REPORT, 12 JULY, 2011. ECOFYS,
FRAUNHOFER ISI, TU VIENNA EEG, ERNST & YOUNG (2011). FINANCING RENEWABLE ENERGY IN THE EUROPEAN ENERGY MARKET BY ORDER OF EUROPEAN COMMISSION, DG ENERGY, 2ND OF JANUARY, 2011. 43 INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE (IPCC) (2011) SPECIAL REPORT ON RENEWABLE ENERGY SOURCES AND CLIMATE CHANGE MITIGATION (SRREN). 15TH JUNE 2011. CHP. 11, P.24. 44 CLIMATE POLICY INITIATIVE (2011):THE IMPACTS OF POLICY ON THE FINANCING OF RENEWABLE PROJECTS: A CASE STUDY ANALYSIS, 3 OCTOBER 2011.
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RENEWABLE ENERGY FINANCING BASICS
In many regions, both state owned and private utilities are contributing to blocking renewable energy through their market power and political power, maintaining ‘status quo’ in the grid, electricity markets for centralised coal and nuclear power and lobbying against pro-renewable and climate protection laws.
Concerns over planning and permit issues are significant, though vary significantly in their strength and nature depending on the jurisdiction. implementing the energy [r]evolution |
In some regions, it is uncertainty of policy that is holding back investment more than an absence of policy support mechanisms. In the short term, investors aren’t confident rules will remain unaltered and aren’t confident that renewable energy goals will be met in the longer term, let alone increased.
© GP/MARKEL REDONDO
image AERIAL PHOTO OF THE ANDASOL 1 SOLAR POWER STATION, EUROPE’S FIRST COMMERCIAL PARABOLIC TROUGH SOLAR POWER PLANT. ANDASOL 1 WILL SUPPLY UP TO 200,000 PEOPLE WITH CLIMATE-FRIENDLY ELECTRICITY AND SAVE ABOUT 149,000 TONNES OF CARBON DIOXIDE PER YEAR COMPARED WITH A MODERN COAL POWER PLANT.