Electricity systems across the U.S. and Europe face significant challenges in the transition to low-carbon energy. While the transition provides plenty of opportunities for investors, businesses, and consumers alike, the current business and regulatory models of investor owned utilities (IOUs) and independent power producers (IPPs), which have mainly developed around competitive markets for fossil fuel generation, are particularly ill-suited to take advantage of these new opportunities. This paper outlines the some major challenges each business segment will face and sets out a roadmap for addressing the challenges.
Renewable energy financing in emerging economies faces particularly daunting challenges, but there are creative policy solutions that could potentially reduce the cost of renewable energy support by as much as 30%.
In this policy brief, authors look at two potential solutions:
- Reduce the cost of using debt sourced from the developed world: Index renewable energy tariffs to foreign currency, in so doing eliminate the currency hedging costs that are responsible for the largest share of the difference between developed world and rapidly emerging country debt costs.
- Improve the cost-effectiveness of domestic renewable energy support programs: Provide lower-cost debt through debt concession programs, which our research shows could lower the total cost of providing required support.
Many developing countries are looking to grow their renewable energy portfolios to meet environmental, economic, business, and energy security goals, particularly as the costs for these technologies are declining rapidly.
The study finds that there is ample scope for enhanced protection of natural resources and growth of agricultural production in Brazil within a Production and Protection framework. From a protection standpoint, the country would benefit from developing mechanisms that significantly drive up the private cost of clearing native vegetation, as well as through the advancement of market-based incentives that promote sustainable practices. From a production standpoint, there is room to increase Brazilian agricultural production via productivity gains, at no apparent cost to environmental conservation.
