Finance Mechanisms for Lowering the Cost of Renewable Energy in Rapidly Developing Countries

The document argues that high debt costs in rapidly emerging economies can increase the cost of utility-scale wind and solar PV projects by 24-32%. It proposes two primary solutions: indexing renewable energy tariffs to foreign currencies to attract lower-cost international capital by mitigating currency hedging costs, and implementing government-backed concessional debt programs to reduce the total support required to make projects viable. The report provides detailed analysis of these mechanisms using India as a primary case study, suggesting that these interventions could lower the cost of renewable energy support by up to 30%.

• High financing costs in rapidly emerging countries can increase the cost of utility-scale wind and solar PV projects by 24-32%, often making renewable energy as expensive as, or more expensive than, in the US and Europe despite lower labor and construction costs.
• Currency hedging costs are a primary driver of high debt costs for foreign investors in emerging markets, often consuming the majority of the interest rate advantage offered by developed-world capital.
• Indexing a portion of renewable energy tariffs to foreign currencies could reduce the cost of supporting renewable energy by 30% or more by reducing the currency risk for foreign lenders.
• Using concessional debt as a support mechanism is more cost-effective than price supports (such as higher tariffs) because it reduces the total amount of support needed to make a project economically attractive.
• In India, interest rate concessions of 3-7% per year could reduce the total combined support required for solar projects by 10-26% and for wind projects by 16-39%.
• Governments can provide debt subsidies more cheaply than developers can source them because they have lower borrowing costs and are better positioned to manage currency swaps.
• Increasing the duration of loans can significantly lower the levelized cost of electricity; in India, extending a loan's duration by six years can reduce these costs by 6-8%.

APA

Nelson, D., & Shrimali, G. (2014). Finance Mechanisms for Lowering the Cost of Renewable Energy in Rapidly Developing Countries. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2014/01/Finance-Mechanisms-for-Lowering-the-Cost-of-Clean-Energy-in-Rapidly-Developing-Countries.pdf

Chicago

Nelson, David, and Gireesh Shrimali. Finance Mechanisms for Lowering the Cost of Renewable Energy in Rapidly Developing Countries. Climate Policy Initiative, 2014. https://www.climatepolicyinitiative.org/wp-content/uploads/2014/01/Finance-Mechanisms-for-Lowering-the-Cost-of-Clean-Energy-in-Rapidly-Developing-Countries.pdf.

Wikipedia

{{cite report |last1=Nelson |first1=David |last2=Shrimali |first2=Gireesh |title=Finance Mechanisms for Lowering the Cost of Renewable Energy in Rapidly Developing Countries |publisher=Climate Policy Initiative |date=January 2014 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2014/01/Finance-Mechanisms-for-Lowering-the-Cost-of-Clean-Energy-in-Rapidly-Developing-Countries.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nelson2014finance, author = {Nelson, David and Shrimali, Gireesh}, title = {{Finance Mechanisms for Lowering the Cost of Renewable Energy in Rapidly Developing Countries}}, institution = {Climate Policy Initiative}, year = {2014}, month = jan, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2014/01/Finance-Mechanisms-for-Lowering-the-Cost-of-Clean-Energy-in-Rapidly-Developing-Countries.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }