Case Studies Reveal Policy is Necessary to Attract Private Investment in Renewables, Risk Reallocation Expands Investor Pool
June 13, 2012
Tunisian Program Solaire increased deployment of solar water heaters despite subsidies for fossil fuel alternatives
U.K. Walney Offshore Windfarms attracted nontraditional investors to immature but promising technology
Venice, Italy – Climate Policy Initiative (CPI) presented the first two case studies in its San Giorgio Group project to examine the role of public money in finding replicable, scalable strategies for increasing green investment.
Program Solaire (Prosol) in Tunisia scaled up renewable energies despite the distorting effect of fossil fuel subsidies through a combination of local policies, international support, and risk reallocation strategies. The Program increased annual installations of residential solar water heaters fivefold, and will reduce emissions by 715 Kt of CO2 over their lifetime. Prosol is even paying for itself – savings from avoided fossil fuel subsidies will cover the costs of government support for solar water heaters.
Keys to success were:
- the Tunisian government’s solar water heater subsidy, which counterbalanced market distortions caused by subsidies on fossil fuels alternatives; and
- the allocation of credit default risk to the state utility, which secured bank revenues and resulted in USD60 million in affordable consumer credit.
The Walney Offshore Windfarm project in the U.K., one of the largest offshore windfarms in the world, attracted GBP 1.3 billion in private investment despite being unable to secure project debt and notwithstanding investor concerns about revenue uncertainty, construction risks, and operations and management risks. In fact, the project attracted pension and private equity funds, for whom the risk and return profiles of such investments were barriers.
Keys to success were:
- green tradable certificates offered by the U.K. government, which generated future revenue streams and made the project viable;
- long-term offtake contracts and other agreements which alleviated revenue uncertainty, construction, and operations and management risks.
“Our first case studies illustrate that the right public policies and investment strategies can attract significant private investment in green activities,” said Barbara Buchner, director of CPI Europe. CPI is conducting additional case studies in 2012.
Climate Policy Initiative (CPI) is a global analysis and advisory organization focused on the effectiveness of policies and strategies for low-carbon growth. An independent, not-for-profit organization with long-term support from George Soros, CPI has offices in San Francisco (headquarters), Berlin, Beijing, Rio de Janeiro, and Venice.