Removing Investment Barriers and Managing Risk

By Todd Foley of ACORE, Uday Varadarajan of Climate Policy Initiative and Richard Caperton of American Progress

  • View the policy recommendations from Finance Policy.
  • Download the executive summary [PDF].
  • Download the full Finance Policy paper [PDF].
  • View the version printed in Elsevier’s Electricity Journal.

The Situation

America’s power system is getting old and obsolete. Three-fourths of coal plants are over 30 years old.  The whole system — from transmission lines, local distribution grids, transformers and controls — is getting old, and some parts are getting obsolete as new technologies emerge in our digital era. Improving it will require enormous investment. The American Society of Civil Engineers projects that we will need to increase our investment in electricity infrastructure by $100 billion through 2020, just to maintain our current level of services. Improving it will require a policy shift and enormous investment – $50-160 billion per year in new, mostly clean energy generation alone, about 2-5x current investment levels.

The question is whether these investments will answer consumer demand for cleaner, more efficient energy and respond to market trends; or whether they will lock in the old system for another century.

Financing necessary upgrades in a way that meets consumer demand is a central challenge. Current policy, regulations and market structures undermine and often block investment in the clean, renewable energy that consumers and businesses increasingly favor. Even supportive policies are not as efficient as they could be, driving up costs unnecessarily. Many finance policies were designed for nascent industries, and may not be scalable as deployment rapidly expands.

We identify a few key needs for reformed policy.

First, adopt policies that open access to larger and lower cost pools of money, such as institutional investors.  Second, make sure investors are rewarded for the full value of their investments, by recognizing societal benefits, changing market rules, and reforming regulations.  Lastly, the cost of investments like wind and solar power is heavily influenced by the cost of capital, which is in turn determined by the amount of risk involved. Policymakers can reduce risk for private investors by streamlining permitting and interconnection, and providing more policy certainty.

America’s Power Plan paper on Finance Policy provides a policy toolbox designed to help state and federal decision makers remove barriers to investment in innovation and meet consumer demand for a more efficient cleaner energy future.