More government policies aimed at financial institutions will be necessary to enable growth in the renewable energy market, according to a new report by the International Renewable Energy Association (Irena).
The Abu Dhabi-based agency said investments in the renewable energy sector will need to double by the end of the decade from last year’s US$286 billion, with private finance needed to make up the lion’s share.
Adnan Amin, the director general of Irena, said that public finance institutions should focus on risk mitigation rather than crowding out private investors.
The current level of public funding in the sector stands at 15 per cent and is expected to maintain this by engaging the private sector.
However, many investors still see this field as risky as a result of political, regulatory, currency and liquidity risks and grid interconnectivity.
“Risk-mitigation instruments and structures provided by public finance institutions can mobilise capital in renewable energy investment by addressing investment risks,” the report said.
Governments can instead leverage financing to encourage more private participation.
Irena said expanding the public financing sector beyond grants and concessional loans to guarantees, derivative instruments and liquidity facilities could help overcome private sector investment challenges in different regions.
But there is still the issue with limited availability of local debt financing.
Irena said many local banks lack experience or information to finance renewable energy projects. However, local banks can increase access to capital by using on-lending, or tapping a development finance institution such as the International Finance Corporation, for a loan.
It isn’t cheaper than standard loans, but it does allow local financiers to access consultancy services and training to build experience.
“If policymakers support these actions through dedicated financial risk-mitigation facilities, investment levels that may now sound unrealistic can be reached,” said Mr Amin.
lgraves@thenational.ae
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