Finance of renewable energy projects
Governmental financial incentives (see Chapter 3) and electricity wholesale markets (see Chapter 4) have prompted considerable growth in the number and scale of renewable energy projects. However, barriers still remain to the financial success of many projects. These barriers can be divided into two categories. The first is difficulties in attracting private sector financing, primarily due to economic uncertainties facing prospective developers and investors contemplating the planning and construction of utility-scale renewable energy projects. The second is financial barriers to small-scale, distributed generation projects such as solar panel systems installed by residential homeowners.
This chapter discusses the numerous means that private sector actors have developed to address these challenges and make renewable energy projects more financially viable. As noted in Chapter 3, the overwhelming majority of capital available for projects is in the private sector. Governmental policies aim to address the barriers to development and help more projects secure funding. This chapter also discusses the role of governmental tax incentives in promoting private sector investment in renewable energy systems.
Beginning with utility-scale projects, financial considerations usually present substantial upfront challenges in project decision-making. Many renewable energy projects are capital intensive, with high upfront costs, low operating costs and benefits from revenues from electricity sales spread out over 20 years or more. Yet support programs like feed-in tariffs (see Chapter 3) only promise markets for plants’ output, not financing of construction costs. As a result, private investment is essential to many projects’ success, and incentives and financing...
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