The impact of financing on renewable energy costs: Implications for renewables policy

In this paper we describe the power plant financing process, estimate the impact of financing terms on renewable energy costs, and provide insights to policymakers on the important nexus between renewables policy design and financing. We review a number of past and current renewable energy policies. We find that policies that do not provide long-term stability or that have negative secondary impacts on investment decisions will increase financing costs, sometimes dramatically reducing the effectiveness of the program. Within a restructured electric industry, it is critical for policymakers to consider the impacts of renewables policy design on financing. We therefore identify several key issues that must be addressed in the design of distribution surcharge-based policies, minimum renewables purchase requirements, and green marketing programs. We also briefly mention several policies that can directly reduce financing casts and barriers.