Inducing Private Finance for Renewable Energy Projects: Evidence from Micro-Data – Environment Working Paper


OECD Environment Working Papers

This series is designed to make available to a wider readership selected studies on environmental issues prepared for use within the OECD. Authorship is usually collective, but principal authors are named. The papers are generally available only in their original language English or French with a summary in the other if available.


English


Inducing Private Finance for Renewable Energy Projects

Evidence from Micro-Data

This paper analyses the effects of government policies on flows of private finance for investment in renewable energy (inducement effect). It also examines whether direct provision of public finance for a project increases the volume of private finance raised (“crowding in” effect). A unique dataset of financial transactions for renewable energy projects with worldwide coverage is constructed using the Bloomberg New Energy Finance database. The analysis covers 87 countries, six renewable energy sectors (wind, solar, biomass, small hydropower, marine and geothermal) and the 2000-2011 time-span. Main findings are that, in contrast to quota-based schemes, price-based support schemes are positively correlated with investors’ ability to raise private finance. The paper suggests that, rather than the type of instrument (price vs. quota), it is the specific design of such schemes that is key to providing a predictable signal and an effective incentive to attract private investors. It is also found that public finance supports precisely those projects that have had difficulty raising private finance (co-financed projects), where neither quota-based measures nor price-based support schemes have a significant effect on private finance flows. This raises the concern that in the absence of well-designed policies which incentivise private finance investment, governments wishing to secure project completion have no other choice than to support projects directly through the use of public finance.


English

Keywords: finance, policy instrument choice, renewable energy, investment, technology deployment

JEL:
O3: Economic Development, Innovation, Technological Change, and Growth / Innovation; Research and Development; Technological Change; Intellectual Property Rights;
L94: Industrial Organization / Industry Studies: Transportation and Utilities / Electric Utilities;
Q42: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Energy / Alternative Energy Sources;
Q58: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Environmental Economics: Government Policy;
Q54: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Climate; Natural Disasters and Their Management; Global Warming;
H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies;
Q55: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Environmental Economics: Technological Innovation;
Q48: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Energy / Energy: Government Policy;
G3: Financial Economics / Corporate Finance and Governance