Financing Energy Infrastructure

Addressing resource depletion and climate change are pressing priorities for modern economies. The 2007 Stern Review emphasised that greenhouse gas (GHG) emissions are the biggest market failure the world has seen. These are not ordinary localised externalities: impacts are likely to be large both in global terms and for future generations. In addition, planning energy infrastructure projects is complicated by risk and uncertainty. Given these market failures, clear and coherent government policies have a crucial role to play. Many governments are emphasising the importance of investment in renewable energy infrastructure but there has not been, as yet, any clear explanation of how these projects will be financed. The emphasis on austerity and disillusionment with public-private partnerships leaves private finance as the default solution but risk and uncertainty are likely to deter private sector investment unless innovative financing mechanisms can be found. Also, as more and more shale gas reserves are discovered with the potential for large profits for private sector investors, there is danger that the emphasis will shift back towards non-renewables. This paper will explore these problems of financing constraints, risk and uncertainty for the effective planning and construction of renewable energy infrastructure.