Structuring the Clean Energy Investment Trust

This report by the Climate Policy Initiative (CPI) proposes a new financial vehicle called the Clean Energy Investment Trust (CEIT) to reduce the cost of renewable energy by better aligning project cashflows with the risk profiles of different investors. By unbundling the cashflows of wind and solar projects and targeting long-term, liability-hedging institutional investors, the authors argue that the cost of wind-generated electricity could be reduced by 15-17% compared to traditional utility financing.

• The proposed Clean Energy Investment Trust (CEIT) could reduce the cost of wind-generated electricity by 15-17% relative to traditional utility financing by maximizing low-risk cashflows for liability-hedging investors.
• Renewable energy projects possess four distinct cashflow profiles that attract different investor types: asset development and construction; predictable cashflows during operation under a fixed-price regime; volatile 'surplus' cashflows during the fixed-price regime; and 'tail-end' cashflows after the fixed-price regime expires.
• The CEIT is designed specifically for 'liability-hedging' investors, such as pension funds and insurance companies, who require predictable cashflows to cover future financial obligations and seek an investment-grade risk profile similar to a bond.
• To achieve an investment-grade risk profile and ensure expected returns in 99% of scenarios, the CEIT should employ a specific package of risk-mitigation tools: a diversified portfolio of 5-10 uncorrelated projects, conservative production estimates (P75-P95), long-term full-service O&M contracts, a purchase price adjustment facility, and a cash reserve covering at least six months of distributions.
• The CEIT differs from YieldCos primarily because it is a closed portfolio; it is not permitted to buy or sell projects once the portfolio is set, thereby avoiding the growth premiums and associated management risks that make YieldCos resemble independent power producer (IPP) or investor-owned utility (IOU) equity.
• A 'surplus' investor product can be created from the cashflows that exceed the CEIT's conservative base-case estimates. This product is targeted at high-risk, high-return investors, such as speculators or developers, and is estimated to be worth 1-2% of the CEIT's value.
• A 'tail' investor product focuses on the residual value and repowering options after the fixed-price contract expires. This investment is attractive to those seeking long-term hedges against energy prices or those interested in future repowering, and it can be used to guarantee the CEIT's cash reserve.
• The CEIT's effectiveness in reducing costs is limited by transaction costs; diversification benefits peak at 8-10 independent assets, after which the cost of additional transactions outweighs the reduction in required reserve size.

APA

Varadarajan, U., Huxham, M., O’Connell, B., Nelson, D., Posner, D., & Pierpont, B. (2017). Structuring the Clean Energy Investment Trust. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2017/08/August-2017-CPI-Energy-Finance-CEIT-Structuring-report-final.pdf

Chicago

Varadarajan, Uday, Matthew Huxham, Brian O’Connell, David Nelson, David Posner, and Brendan Pierpont. Structuring the Clean Energy Investment Trust. Climate Policy Initiative, 2017. https://www.climatepolicyinitiative.org/wp-content/uploads/2017/08/August-2017-CPI-Energy-Finance-CEIT-Structuring-report-final.pdf.

Wikipedia

{{cite report |last1=Varadarajan |first1=Uday |last2=Huxham |first2=Matthew |last3=O’Connell |first3=Brian |last4=Nelson |first4=David |last5=Posner |first5=David |last6=Pierpont |first6=Brendan |title=Structuring the Clean Energy Investment Trust |publisher=Climate Policy Initiative |date=August 2017 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2017/08/August-2017-CPI-Energy-Finance-CEIT-Structuring-report-final.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{varadarajan2017structuring, author = {Varadarajan, Uday and Huxham, Matthew and O’Connell, Brian and Nelson, David and Posner, David and Pierpont, Brendan}, title = {{Structuring the Clean Energy Investment Trust}}, institution = {Climate Policy Initiative}, year = {2017}, month = aug, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2017/08/August-2017-CPI-Energy-Finance-CEIT-Structuring-report-final.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }