CHARACTERISTICS

While the emissions benefits (air pollution and greenhouse gas) of renewable energy technologies are widely recognized, the cost of renewable energy (RE) technologies remains—in most applications—greater than that of "conventional" power generation equipment. To facilitate technology deployment of renewable energy technologies various innovative financial mechanisms have been developed to 1) reduce the cost differential between conventional and renewable technologies, and 2) address investor concern about high "first costs". These mechanisms include the following:

• Microfinancing (i.e., financial intermediation at the local level) provides small companies (or residential users) with access to capital via loans for small-scale investments under flexible and often non-traditional lending conditions. Such financing may allow borrowers to upgrade or install energy-efficient technologies, resulting in more energy services with less energy consumption.
• Portfolio Fees: small-scale projects can involve relatively high transaction costs. To help save on administrative fees, developers can bundle similar projects together into a "portfolio" in which one set of procedures is developed to apply to a number of projects.
• Tax Credits: government at any level (local, regional or national) can authorize tax deductions for the purchase or operation of renewable energy systems.
• Buydown Cost Differential: In many countries, governments offer subsidies to help reduce or "buy down" the cost of using renewable energy technologies.

ISSUES ASSOCIATED WITH IMPLEMENTING ACTION

• Renewable energy projects tend to be smaller than conventional power generation technologies meaning that transaction costs are proportionately higher for RE projects, and there are fewer economies of scale.
• Renewable energy projects are capital-intensive and usually require higher up-front costs than conventional technologies. Projects that use technologies with lower life-cycle costs and emissions but that have higher capital requirements than their alternatives may not attract the necessary finance.
• Energy supply technologies compete for limited capital with other development needs.
• Investment may yield lower returns than other opportunities.
• Over the life-cycle of a technology, the benefits of using renewable energy technologies could 1) create indigenous technology production; 2) create new local infrastructure and employment; 3) could aid in meeting a country's development goals, especially in rural areas; and 4) could outweigh, or at least compete with conventional technologies.

RESOURCES

• The U.S. Export Council for Renewable Energy (US/ECRE) has played a role in several initiatives to help finance deployment of renewable energy technologies:
  1. US/ECRE and the federal interagency Committee on Renewable Energy Commerce and Trade (CORECT) have developed Financing Renewable Technologies, a unified application form for financing international renewable energy projects. The single form can be simultaneously submitted for funding consideration to the U.S. Agency for International Development, Export-Import Bank of the United States, Overseas Private Investment Corporation, and the U.S. Trade and Development Agency.
  2. Source of Financing in Latin America identifies potential sources of investment capital for renewable energy projects to be located in Latin America.
• Financing Energy Services for Small Scale Energy (FINESSE) was established in 1989 to mainstream renewable energy and energy efficiency projects into the lending programs of World Bank, the Inter-American Development Bank and other multilateral organizations. By bundling a number of small-scale renewable energy projects into a larger financing package, the technologies are better able to qualify for funding from international financing institutions.
• The Environmental Enterprises Assistance Fund is a non-profit organization that provides equity and debt financing for non-U.S. companies in environmentally beneficial business. Seeks host country co-financing of projects.
• Through the Small and Medium Scale Enterprise Program the International Finance Corporation/Global Environmental Facility channel funds through financial intermediaries and non-governmental organizations to small- and medium-scale enterprises for renewable energy (as well as energy efficiency and sustainable forestry projects).
• IFC and the World Bank have developed a Renewable Energy and Energy Efficiency Investment Fund (RE/EEF) to provide investment funds for commercially proven and innovative renewable energy and energy-efficiency technologies, including small-scale projects.
• The U.S. Department of Energy supports R&D efforts in renewable energy technologies as well as efforts to commercialize and deploy these technologies in energy markets. The government may provide matching funds, and/or may support deployment activities for grid-connected operations with one or more electric utilities. For instance, the Commercialization Ventures Program provides funds to RE projects to assist in market entry and penetration, based on their technical merit.
• Green Energy Finance Discussion Group, gef-discussion-request@energyfinance.org, http://www.energyfinance.org/list-archives/info-files/gef-discussion.html
• The European Union sponsors programs including THERMIE and ALTENER that provide financial support on a cost-shared basis for implementing innovative renewable energy technologies (other technologies may also be eligible). http://www.europa.eu.int/en/comm/dg17/programs.htm.

CONTACTS

Environmental Enterprises Assistance Fund, Inc. (EEAF)
Brooks H. Brown
Arlington, VA
Tel: (703) 522-5928
Fax: (703)-522-6450
eeaf@eeaf.org
http://www.eeaf.org

Global Environment Facility
The GEF Secretariat
Washington, DC
Tel: (202) 473-0508
Fax: (202) 522-3240
http://www.gefweb.org

International Finance Corporation
Dana Younger
IFC GEF Coordinator
Environment Division
Technical & Environment Department
Washington, DC
Tel: (202) 473-4779
Fax: (202) 334-9705
DYounger@WorldBank.org
http://www.ifc.org