Not surprisingly, every analysis of the state of renewable energy seems to include a call for finance. Entrepreneurs and environmentalists alike seek sustainable growth in the renewable energy sector, and the growth medium required by all young industries is cash. Thus, many current discussions of how to stimulate renewables, especially in the context of a restructuring electric system, focus on schemes to direct money from consumers, ratepayers, taxpayers, investors and other sources to cash-hungry firms.

Yet “finance” is a vague term, and it often corresponds to an equally indeterminate notion of renewable energy. In decades past, many analysts conceived of renewable energy as an undifferentiated commodity that, when directed into the national energy system at the behest of state regulators, reduced America’s dependency on foreign oil, lowered emissions of toxic pollutants, and so on. Finance for renewable energy often consisted of government grants for R&D, tax credits based on investment, and the like — in short, a flow of cash vitally necessary to keep nascent firms from starving.

In years to come, we will need to replace this macroscopic view of renewable energy as a commodity with a more precise view: renewable energy products sold by specific firms into specific markets. These may include solar shingles, green power bundled with telecommunications, geothermal heat pumps, passive solar technologies for office buildings, and so on. The possibilities may surprise us. Convergence among utility and unregulated businesses may weave renewable energy into yet uncontemplated offerings — should some entrepreneur assume the challenge of building a market for them.

In this coming world, we will need to design financial products matched to renewable energy products. In some cases the groundwork has been laid, but in most cases the financial products are as immature as the renewable energy products they mean to serve. For example, homeowners seeking to include photovoltaic systems in their mortgages can turn to several government agencies, but the process is far clunkier than obtaining an automobile loan from a private lender.

The following paper discusses a proposed mechanism for rectifying the asymmetry between retail purchasers of green power — who generally sign only short-term contracts — and renewable energy project developers — who require assurances of a long-term market to finance their endeavors. It represents the first of a planned series of papers on financial tools crafted to meet the needs of specific renewable energy products. In coming months, we will continue this series with an analysis of an “electrofinance” product bundling renewable energy and energy efficiency purchases with electric service and retirement annuities; a proposed exploration of the measures necessary to improve finance for home photovoltaic systems; and perhaps others. We hope in this way to add to the stock of ideas available to the renewable energy community in these interesting times.

Adam Serchuk, Research Director and Executive Editor of REPP’s Special Report series
Mary Kathryn Campbell, Publications and Outreach Manager
J. Bernard Moore, Research Associate
Roby Roberts, Executive Director
Virinder Singh, Research Associate

May 5, 1999