De-risking renewable energy investments in developing countries: a multilateral guarantee mechanism

David Matthäus, Michael Mehling

Research output: Contribution to journalArticlepeer-review

Abstract

Mitigation of global warming requires substantial investment in electricity generation from renewable sources. A large share of new generation capacity is required in regions with adverse financing conditions. We propose a global guarantee mechanism to reduce risk premia of renewable energy investments by means of risk pooling and increased market efficiency. Policymakers could establish this mechanism by scaling up existing international risk guarantee initiatives. We estimate the net present value of overall savings at US$2018 1.5 trillion globally for investments by 2030, with the largest relative savings (between 20.5% and 22%) in Sub-Saharan Africa and the Maghreb. The savings from such a mechanism outweigh its estimated average yearly operating cost. By lowering the cost of decarbonization in high-risk countries, the proposed mechanism offers policymakers a tool to make current global mitigation pledges more achievable and enables the global community to pursue more ambitious climate action.
Original languageEnglish
Pages (from-to)2627-2645
Number of pages19
JournalJoule
Volume4
Issue number12
Early online date16 Nov 2020
DOIs
Publication statusPublished - 16 Dec 2020

Keywords

  • climate finance
  • climate change
  • development cooperation
  • energy policy
  • de-risking
  • renewable energy
  • renewable energy investments
  • policy framework

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