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The role of financing cost and de-risking strategies for clean energy investment

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  • Jan Christoph Steckel
  • Michael Jakob

Abstract

Even though costs for renewable energy sources keep falling, the initial investments required for their build-up can pose a substantial challenge in countries with high capital costs. In this paper, we start from the observation that when capital costs are high, carbon pricing alone is unlikely to be sufficient to achieve high shares of renewable energy sources in the power sector. Instead, complementary measures to decrease investors' capital costs are required. We then discuss how financing costs can be lowered by either addressing the underlying sources of investment risk (policy de-risking) or shifting risk away from private sector investors (financial de-risking) on the domestic and the international level.

Suggested Citation

  • Jan Christoph Steckel & Michael Jakob, 2018. "The role of financing cost and de-risking strategies for clean energy investment," International Economics, CEPII research center, issue 155, pages 19-28.
    • Handle: RePEc:cii:cepiie:2018-q3-155-4
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    Cited by:

    1. D'Orazio, Paola, 2022. "Mapping the emergence and diffusion of climate-related financial policies: Evidence from a cluster analysis on G20 countries," International Economics, Elsevier, vol. 169(C), pages 135-147.
    2. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    3. Jenny Gabriela Peña Balderrama & Thomas Alfstad & Constantinos Taliotis & Mohammad Reza Hesamzadeh & Mark Howells, 2018. "A Sketch of Bolivia’s Potential Low-Carbon Power System Configurations. The Case of Applying Carbon Taxation and Lowering Financing Costs," Energies, MDPI, vol. 11(10), pages 1-20, October.
    4. Bei, Jinlan & Wang, Chunyu, 2023. "Renewable energy resources and sustainable development goals: Evidence based on green finance, clean energy and environmentally friendly investment," Resources Policy, Elsevier, vol. 80(C).
    5. Tang, Wenzhi & Du, Shaofu & Hu, Li & Wang, Bill & Zhu, Yangguang, 2022. "The effects of leadership in Clean Development Mechanism low-carbon operations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    6. Huang, Jianbai & Liu, Jia & Zhang, Hongwei & Guo, Yaoqi, 2020. "Sustainable risk analysis of China's overseas investment in iron ore," Resources Policy, Elsevier, vol. 68(C).
    7. Semmler, Willi & Di Bartolomeo, Giovanni & Minooei Fard, Behnaz & Braga, Joao Paulo, 2022. "Limit pricing and entry game of renewable energy firms into the energy sector," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 179-190.
    8. Kun Lv & Shurong Yu & Dian Fu & Jingwen Wang & Chencheng Wang & Junbai Pan, 2022. "The Impact of Financial Development and Green Finance on Regional Energy Intensity: New Evidence from 30 Chinese Provinces," Sustainability, MDPI, vol. 14(15), pages 1-29, July.
    9. Jakob, Michael & Soria, Rafael & Trinidad, Carlos & Edenhofer, Ottmar & Bak, Céline & Bouille, Daniel & Buira, Daniel & Carlino, Hernan & Gutman, Veronica & Hübner, Christian & Knopf, Brigitte & Lucen, 2019. "Green fiscal reform for a just energy transition in Latin America," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-11.
    10. Farhad Taghizadeh-Hesary & Naoyuki Yoshino, 2020. "Sustainable Solutions for Green Financing and Investment in Renewable Energy Projects," Energies, MDPI, vol. 13(4), pages 1-18, February.
    11. Varela Soares, Ian & Mauger, Romain & Santos, Thauan, 2023. "Considerations for benefit stacking policies in the EU electricity storage market," Energy Policy, Elsevier, vol. 172(C).
    12. Anderson, Brilé & Cammeraat, Emile & Dechezleprêtre, Antoine & Dressler, Luisa & Gonne, Nicolas & Lalanne, Guy & Martins Guilhoto, Joaquim & Theodoropoulos, Konstantinos, 2023. "Designing policy packages for a climate-neutral industry: A case study from the Netherlands," Ecological Economics, Elsevier, vol. 205(C).
    13. Christian Haas & Karol Kempa, 2023. "Low-Carbon Investment and Credit Rationing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(1), pages 109-145, October.
    14. Steckel, Jan C. & Jakob, Michael, 2021. "The political economy of coal: Lessons learnt from 15 country case studies," World Development Perspectives, Elsevier, vol. 24(C).
    15. Juan Camilo Mejia-Escobar & Juan David González-Ruiz & Eduardo Duque-Grisales, 2020. "Sustainable Financial Products in the Latin America Banking Industry: Current Status and Insights," Sustainability, MDPI, vol. 12(14), pages 1-25, July.
    16. Tagliapietra, Simone & Zachmann, Georg & Fredriksson, Gustav, 2019. "Estimating the cost of capital for wind energy investments in Turkey," Energy Policy, Elsevier, vol. 131(C), pages 295-301.
    17. Peng, Benhong & Zhao, Yinyin & Elahi, Ehsan & Wan, Anxia, 2022. "Pathway and key factor identification of third-party market cooperation of China's overseas energy investment projects," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    18. Braga, Joao Paulo & Semmler, Willi & Grass, Dieter, 2021. "De-risking of green investments through a green bond market – Empirics and a dynamic model," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
    19. Yunpeng Wang & Chun-Ping Chang, 2023. "The effect of policy stability on clean energy investment," Economic Change and Restructuring, Springer, vol. 56(1), pages 327-344, February.
    20. Majd Olleik & Hassan Hamie & Hans Auer, 2022. "Using Natural Gas Resources to De-Risk Renewable Energy Investments in Lower-Income Countries," Energies, MDPI, vol. 15(5), pages 1-22, February.
    21. Donnelly, David & Fricaudet, Marie & Ameli, Nadia, 2023. "“Accelerating institutional funding of low-carbon investment: The potential for an investment emissions intensity tax”," Ecological Economics, Elsevier, vol. 207(C).
    22. Jan C. Steckel & Ira I. Dorband & Lorenzo Montrone & Hauke Ward & Leonard Missbach & Fabian Hafner & Michael Jakob & Sebastian Renner, 2021. "Distributional impacts of carbon pricing in developing Asia," Nature Sustainability, Nature, vol. 4(11), pages 1005-1014, November.

    More about this item

    Keywords

    Financing costs; Renewable energy; Carbon pricing; De-risking;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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