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Financing Renewable Energy

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.

The wind farms that we built convert the wind’s kinetic energy into electricity. The revenues gained from selling the electricity is used to repay CRC Breeze Finance’s long-term debt. CRC keeps the money that’s left over.  Even if the wind does not blow as hard as usual or operating and maintenance expenses turn out to be higher than we assumed, there is enough of a cushion that bondholders will be paid out on schedule.  Three years later, it’s proceeding on course.