Financing Renewable Energy

The problem at the heart of financing renewable energy is not whether to subsidize it, but how. Rather than concocting schemes to lend directly, guarantee loans, or invest in renewable projects on the theory that the private sector somehow lacks this capability, governments can best stimulate low-cost renewable energy by keeping subsidies simple and predictable.

NEW YORK – There is plenty of money in the private sector to build up the world’s renewable infrastructure as long as the numbers add up, and profit-seeking private investors will figure out how to do it without any financing help from government. 

But the numbers do not add up without some sort of subsidy.  Wind energy, for example, is about 1.5 to 2 times as expensive as electricity from coal-fired plants.  Even though wind is free and coal must be paid for, the initial capital costs of a wind turbine and transmission cables are much higher than for conventional power plants.  Investors require above-market rates for renewable power or similar compensation that reflects the social benefits of emissions free energy.

The case of my own firm, Christofferson, Robb & Company (CRC), illustrates how private capital markets can finance renewable energy when the subsidy is right. In 2005-2006, my firm acquired 330-megawatt onshore projects in Germany and France.  Our fund contributed the equity, and a bank lent the money needed to finance construction. Once the portfolio was assembled, we sold the projects to a special-purpose vehicle called CRC Breeze Finance, which issued €470,000,000 of asset-backed securities.

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