Financing clean power: a risk-based approach to choosing ownership models and policy/finance instruments

This research paper by the Climate Policy Initiative (CPI) proposes a risk-based framework for selecting ownership models and finance instruments for clean power investments. The authors argue that minimizing the overall cost of the low-carbon energy transition requires allocating specific investment risks—such as construction, price, and curtailment—to the party (private investors, public entities, or consumers) best placed to manage, understand, and bear them.

• The authors propose a four-step framework to optimize energy investment costs: identifying key risks based on technology and country context, assessing the ideal allocation between private and public parties, choosing a matching ownership model, and using finance/policy instruments to fine-tune the allocation.
• Correct risk allocation can lead to significant cost reductions; the report identifies potential savings of 10-40% in overall investment costs through the reallocation of development, price, offtake, and curtailment risks.
• The ideal risk allocation depends heavily on technology type. Flexible generation (e.g., CCGTs) should bear price and curtailment risks to encourage efficient dispatch, whereas renewable energy owners (e.g., wind, solar) have limited ability to manage these risks, and exposing them to such risks primarily increases the cost of capital.
• Country context influences risk allocation; for example, in India, public entities are better suited to manage development risks like land acquisition and grid connection due to bureaucratic and politicized planning rules.
• Ownership models provide a baseline for risk allocation but often leave gaps. These range from direct public ownership (taxpayer risk) and mutual/customer ownership (customer risk) to pure private ownership (private investor risk), with intermediate models like PPPs or regulated private finance.
• Specific instruments can be used to close risk gaps: public finance instruments (grants, guarantees) transfer risk to taxpayers; government contracts (PPAs) shift risk between investors and taxpayers; regulatory instruments and policy mechanisms (Feed-in Tariffs) transfer risk to consumers.
• In a stylized example of onshore wind in New York State, the authors estimate that moving from a merchant model to a fixed-price PPA or Feed-in Tariff could reduce the private cost of capital by 120-200 bps and reduce overall levelized costs by at least 10%.
• In a stylized example of solar investment in India, the authors suggest that reallocating price, development, curtailment, and currency risks to public entities or consumers could reduce levelized costs by 30-40%.
• Low-carbon investments are typically more capital intensive than fossil generation, making financing costs a more critical driver of total costs and increasing the merit of models that lower the cost of capital, even if they reduce operational efficiency incentives.

APA

Steggals, W., Nelson, D., & Stigliani, G. (2017). Financing clean power: a risk-based approach to choosing ownership models and policy/finance instruments. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2017/09/Financing-clean-power-a-risk-based-approach-Sept-2017.pdf

Chicago

Steggals, Will, David Nelson, and Gaia Stigliani. Financing clean power: a risk-based approach to choosing ownership models and policy/finance instruments. Climate Policy Initiative, 2017. https://www.climatepolicyinitiative.org/wp-content/uploads/2017/09/Financing-clean-power-a-risk-based-approach-Sept-2017.pdf.

Wikipedia

{{cite report |last1=Steggals |first1=Will |last2=Nelson |first2=David |last3=Stigliani |first3=Gaia |title=Financing clean power: a risk-based approach to choosing ownership models and policy/finance instruments |publisher=Climate Policy Initiative |date=August 2017 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2017/09/Financing-clean-power-a-risk-based-approach-Sept-2017.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{steggals2017financing, author = {Steggals, Will and Nelson, David and Stigliani, Gaia}, title = {{Financing clean power: a risk-based approach to choosing ownership models and policy/finance instruments}}, institution = {Climate Policy Initiative}, year = {2017}, month = aug, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2017/09/Financing-clean-power-a-risk-based-approach-Sept-2017.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }