TBP05-financing.pdf (1159 KB)

Authors: Virginia Sonntag-O’Brien, Basel Agency for Sustainable Energy and Eric Usher, UN Environment Programme

From the financing point of view, renewables are special compared to fossil fuel systems: the investment costs are high, but operation and fuel costs are low respectively zero. Very often, renewables have a decentralised character, but local banks do not have experiences with the financing of energy supply technologies. However, while industrialised countries face financing challenges in the replacing of existing energy systems with fossil-based energy value chains, many developing countries must cope with a general lack of financing power, service coverage, access and basic system development in their energy sectors. Such different points of departure imply different challenges in terms of financing. The situation might be, again, somewhat different for some of the larger emerging market countries (e.g., India, China, Brazil, Indonesia) or for transition countries (e.g., Eastern Europe, Russia).

There is a concrete need for innovative financing instruments tailored to the specific needs of renewable energy solutions. Both public and private financial institutions have years of experience with providing financing for conventional energy. Also, the equity financing component of energy utilities (private and public) is often geared towards such investments. It is therefore important to change mindsets and instruments in order to promote financing instruments for renewable energy. While some of these considerations in industrialised countries also apply to markets in developing countries, there are a number of actors and challenges that are specific to developing countries.