Political Capital Needed for Clean Energy Finance to Flourish

Private-sector investment in clean energy continues to grow as costs come down and free-market dynamics begin to replace government subsidies. But this influx of financial capital is still not enough, according to speakers at “Creative Power: New Models for Growing Clean Energy Investment,” a discussion held at Bloomberg L.P. in Manhattan on Sept. 20 as part of New York Climate Week.

“We need leaders to invest political capital in the [climate policy] process,” explained Greg Barker, the UK envoy on climate change. The UK has thus far decreased its own emissions 20 percent below 1990 levels, he said. To continue this trend, he explained, “innovation will fundamentally come from the private sector – but the market failure [around carbon emissions] is so strong that there is a role for government action.”

This market failure is the fact that the international economy has not attached a cost to carbon and other climate-changing gases.

“Climate change is the largest market failure known to man,” said Rasmus Helveg Petersen, Denmark’s minister of climate and energy. “We need innovative finance to make the transition.”

Balancing the roles of the public sector, the private sector, and innovative public-private partnerships can be tricky. Alfred Griffin, president of the New York Green Bank (NYGB), pointed out that the NYGB wants to focus on deals that would not happen otherwise without its involvement.

“Our first question when responding to a proposal is, ‘Are we needed?’” Griffin said. To this end, the NYGB does not consider itself to be providing subsidized capital. Instead, it hopes to support the private sector in understanding and mitigating risks to enable investment.

As clean energy market risks are perceived to be decreasing, less government support will be needed for these markets. Panelists stated that they feel the perception of technological risk associated with renewable technologies is dissipating. In fact, in light of the power outages during Hurricane Sandy and other severe weather events, the resiliency of renewable, distributed generation is an emerging part of its value proposition.

At the same time, the risk of traditional fossil fuel assets, such as coal, is seen as increasing. As the specter of climate change and its associated dangers loom, “certainly coal is being thought of as a risky asset,” said A.J. Sabatelle, associate managing director of corporate finance for Moody’s Investors Service. This summer’s downgrade of coal stock Peabody Energy by Deutsche Bank supports his assessment. At Moody’s, Sabatelle said, “the sale of older coal-fired assets is viewed as credit-positive.”

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