Stanford publishes clean energy finance papers

Tuesday, November 7, 2017

Stanford University's Precourt Institute for Energy has launched a Clean Energy Finance Initiative with a forum and the release of a series of papers addressing the challenge and opportunity of dramatically increasing global investment in clean energy deployment.

A framing paper, Derisking Decarbonization: Making Green Energy Investments Blue Chip, presents an investor's view of the risks that could deter significant increases in clean energy investment. It considers the investment required to meet the International Energy Agency's "450 Scenario" aimed at limiting global warming below 2 degrees Centigrade. IEA forecasts that investment in clean energy, must average $2.3 trillion per year through 2040, an annual spending rate roughly three times higher than the rate during the period 2010-2015.

The Stanford framing paper considers a broad range of clean energy technologies, including energy efficiency, renewables, nuclear power, carbon capture and storage (CCS), natural gas, cogeneration, and key enabling technologies including transmission, storage, and demand response. In addition to the practical challenges involved in tripling clean energy investment rates, the paper identifies challenges including the size of clean energy demand relative to annual new investible capital, a mismatch between institutional investor risk profiles and the currently high-risk nature of most clean energy projects, and a locational mismatch between sources of capital and global need for clean energy.

The paper concludes that since most sources of capital will not significantly lower their investment standards for climate reasons, the quality of the green investments offered must be improved: "Green energy projects must become blue chip investments, if we are going to successfully confront climate change." It then analyzes specific issues of investment risk and potential solutions, including market risk, policy risk, project development risk, and investment framework risk.

Eight additional "solutions papers" address specific aspects of investment risk. Some evaluate opportunities to enable more efficient clean energy finance in China or to mitigate financial risk in Indian renewable energy investments. Another examines the implications to investors and to politicians of carbon dividends.

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