Financing renewable energy: Obstacles and solutions
The majority of renewable energy technology projects now being developed use long term project financing to raise capital. The financial community scrutinizes renewables more closely than some conventionally fueled electric generation facilities because it perceives renewables as risky and expensive. Renewables pay for this perceived risk through higher interest charges and other more restrictive loan covenants. Risks that are not eliminated in the power sales agreement or through some other means generally result in higher project costs during financing. In part, this situation is a product of the private placement market and project finance process in which renewable energy facilities must function. The project finance process attracts banks and institutional lenders as well as equity investors (often pension funds) who do not want to place their capital at great risk. Energy project finance exists on the basis of a secure revenue stream and a thorough understanding of electric generation technology. Renewables, like all energy projects, operating in uncertain regulatory environments are often difficult to finance. In the uncertain regulatory environment in which renewables now operate, investors and lenders are nervous about challenges to existing contracts between independent power producers and utilities. Challenges to existing contracts could foretell challenges to contracts in the future. Investors and lenders now look to state regulatory environments as an indicator of project risk. Renewable energy technology evolves quickly. Yet, often the information about technological evolution is not available to those who invest in the energy projects. Or, those who have invested in new renewable energy technology in the past have lost money and are nervous about doing so in the future - even though technology may have improved. Inadequate or unfavorable information is a barrier to the development of renewables.
- Research Organization:
- Urban Consortium Energy Task Force, Chicago, IL (United States)
- Sponsoring Organization:
- USDOE, Washington, DC (United States)
- DOE Contract Number:
- FC02-92CE16067
- OSTI ID:
- 258150
- Report Number(s):
- DOE/CE/16067-6(Rev.); ON: DE96012885; TRN: 96:004134
- Resource Relation:
- Other Information: PBD: Jun 1994
- Country of Publication:
- United States
- Language:
- English
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