Recent Innovations in Financing For Clean Energy
This report discusses the innovations that a local or regional authority should consider when developing an energy efficiency finance programme. This document gives hands and feet to the emission reduction targets and targets for using energy from renewable sources that countries have committed themselves to – and which must be realised in a local or regional context.
Description
Energy efficiency in housing demands a greater up-front payment in comparison with non-efficient equivalents. This initial investment might prevent households from implementing efficiency measures. However, the report emphasises that finance is not the only barrier to making efficiency investments. Five categories of other hurdles are to be tackled:
- Transaction costs - the time and effort required to secure information, fill out forms, apply for financing and arrange for contractors may outweigh the perceived benefits from efficiency;
- Lack of information - many homeowners do not have the information they need to build, remodel or purchase in the most energy efficient way;
- Uncertainty of savings - actual energy and cost savings may deviate from projected savings;
- Split incentives - this occurs if the party that must make the investment (a landlord) is different from the party that benefits (a renter);
- Initial capital investment - the first cost, and lack of capital to pay that cost, deters investment.
Financing is not the definite answer; it should be viewed as a
complement to other strategies such as building energy codes,
appliance efficiency standards, or individual energy behaviour.
When considering finance programmes proper, there are 8
subcategories that can be varied upon:
- Capital sources;
- Loan terms;
- Qualifying Measures;
- Target Sectors and Markets;
- Interest Rates;
- Default Rates, Underwriting and Credit Enhancements;
- Transaction Points;
- Financing Program Structures.
For each of these variables and the possibilities they present a
policy officer with, specific examples and advantages and
disadvantages are reviewed. Though financing is more complex than
grant programmes, this report recommends this approach as it will
stimulate energy efficiency to become an endogenous process.
Contact
Southwest Energy Efficiency Project
Tel: +001 303 447 0078
Publication date
October 2009
Document type
Policy
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