Elsevier

Applied Energy

Volume 236, 15 February 2019, Pages 1249-1268
Applied Energy

How do policies mobilize private finance for renewable energy?—A systematic review with an investor perspective

https://doi.org/10.1016/j.apenergy.2018.11.098Get rights and content
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Highlights

  • This study reviews the effectiveness of policies for renewable energy investments.

  • We analyse the impact of policies on investment risk and investment return.

  • We separate the effect of policy design elements on investment risk and return.

  • The study has important policy implications for a privately financed energy transition.

Abstract

With the urgency of climate change, and billions spent globally on renewable energy (RE) support policies, it is crucial to understand which policies are effective. Substantial scholarly research on RE deployment policies has been carried out over the last two decades, resulting in inconclusive findings regarding the effectiveness of mobilizing private finance. Here, we take a novel perspective and review 96 empirical studies concerning the impact of policies on two key investor decision metrics: investment risk and investment return. Only if both metrics correspond to the investors’ expectations are they willing to engage in RE projects. First, our rigorous literature review shows that effective policies address risk and return simultaneously. Second, we find that generic instrument design features, such as credibility and predictability (continuous evaluation and monitoring), considerably impact investment risk. A more focused analysis of the specific design elements of feed-in tariffs, auctions and renewable portfolio standards reveals that these instruments are most effective when they are designed in such a way that they reduce RE project risk while increasing return. We distil important implications for policymakers who aim to foster renewable energy and clean technologies more broadly.

Keywords

Renewable energy
Investment
Policy design
Risk-return
Feed-in tariff
Renewable portfolio standards
Auctions

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