Renewables, Policy, and the Cost of Capital

Abstract

Public policy has played a critical role in creating and shaping global renewable energy markets. Yet 30 years since the passage of the first federal program in the U.S., under the Public Utilities Regulatory Policies Act (PURPA), renewable power generation still constitutes less than three percent of the aggregate U.S. portfolio. In spite of strong growth in project development, many risks and challenges remain, raising the price of capital in the sector and limiting acceptance of new power generation technologies. The project team, in cooperation with the UNEP/BASE Sustainable Energy Finance Initiative (SEFI), conducted a series of stakeholder interviews and related secondary research in order to understand how U.S. renewable energy policy environments influence the cost and overall availability of private financing for renewable power projects. By distilling the perspectives of capital providers and others familiar with the project financing process, we aim to deliver new insight to policy-makers on lowering the cost of capital needed to finance new renewable power projects. Our research findings indicate that although existing renewable energy policies have been effective in driving new development in the U.S., several problems with policy design and consistency contribute to the higher cost of renewable versus conventional power projects. A series of specific policy solutions favored by interviewees are discussed in detail in the report. Overall, the findings emphasize the opportunity for policy to create a more stable, transparent, and predictable market for renewable energy, which in turn will lower financing costs and improve the flow of capital to the sector.