Renewable Energy Finance
Renewable energy finance funds the development and expansion of renewable energy generation, transmission and storage projects, including solar, wind, hydroelectric, biomass, and geothermal technologies.
In June 2019, with the Climate Change Act 2008 (2050 Target Amendment) Order 2019, the Government committed to a 100% reduction of greenhouse gas emissions by 2050 compared with 1990 levels. In September 2023, the government set the most ambitious target to reduce carbon emissions by 68% by 2030 compared to 1990 levels – and it is the only major economy to have set a target of 77% for 2035. Given the local and global push towards sustainability and reducing carbon emissions, renewable energy finance helps fund this area of focus for investors, governments, and financial institutions.
Renewable energy finance funds purchases and installation of new equipment restructures existing debt or refinances existing renewable energy equipment to cash out equity.
Renewable Assets We Can Finance
- Solar panel technology
- Biomass energy
- On-shore wind
- Air and ground source heat pumps
- Anaerobic digestion plants
- Combined heat and power (CHP) systems
Renewable Energy Finance Service
- Specialist-tailored finance solutions
- Hassle-free process
- Competitive rates of finance
- Fast payouts
- Multiple panels of funders who specialise in B2B renewable finance
Spread the equipment cost you need through tailor-made Hire Purchases, Finance Leases, Operating Leases or Refinance packages.
Our renewable energy finance serves businesses such as:
- Renewable Energy (including SPVs)
- Agriculture & Forestry
- Waste Recycling
- Brewing & Distilleries
- Manufacturing
- Local Authorities
2024 Renewable Energy Finance Guide
Contents
What is Renewable Energy Finance?
Renewable energy finance encompasses various financial instruments, strategies, and mechanisms designed to mobilise capital for projects that generate energy from renewable sources.
These sources are inherently sustainable as they can be replenished naturally, unlike fossil fuels, which are finite and environmentally detrimental. Key renewable technologies benefiting from this type of finance include solar, wind, hydroelectric, biomass, and geothermal power.
Key Aspects of Renewable Energy Finance
Investment Vehicles. Investments in renewable energy can come through various channels, including direct project investment, renewable energy funds, green bonds, and public market investments in companies involved in renewable energy.
Project Financing. This is a common approach in renewable energy finance, where the financing structure heavily relies on the project's projected cash flows rather than the creditworthiness of the project sponsors. Project finance often involves a mix of equity, debt, and sometimes government subsidies or incentives.
Government Incentives and Policies. Many governments offer incentives to encourage the development of renewable energy projects. These might include tax credits, feed-in tariffs (payments made to renewable energy providers for the electricity they produce), grants, and other financial support mechanisms.
Risk Management. Financing renewable energy projects involves managing several risks, including project development risk, technology risk, market risk (such as changes in energy prices or demand), and regulatory risk. Financial instruments and structures, such as hedging, insurance, and guarantees, can be used to manage these risks.
Public and Private Sector Roles. Both public and private sectors play crucial roles in renewable energy finance. While private capital is essential for funding, public sector entities can provide support through policy frameworks, direct investment (often in early-stage technologies), and financial incentives.
Innovation in Financing. As the renewable energy sector evolves, so do the financial products and mechanisms to support it. This includes the development of green bonds, which are specifically aimed at raising capital for climate and environmental projects, and the use of blockchain and other technologies to facilitate investments.
Sustainability and Impact Investing. Renewable energy finance is a significant component of the broader trend towards sustainability and impact investing, where investors seek financial returns and environmental and social impact.
Renewable energy finance is essential to transition towards a more sustainable energy future. It requires collaboration across sectors, innovative financing solutions, and supportive policies to overcome barriers and unlock the potential of renewable energy sources.
Is renewable energy the same as Green finance?
No, renewable energy finance is just one subset of green finance. Green finance is a term for the funding of environmentally positive activities. Examples include ecologically-friendly goods and services, the construction of green infrastructure and the generation, transmission and storage of renewable energy.
Why is green finance necessary?
Green finance is necessary because it directly supports the transition to a sustainable, low-carbon economy by channelling investments into environmentally friendly projects, technologies, and infrastructure. It plays a critical role in combating climate change, preserving biodiversity, and ensuring the sustainable use of natural resources. By providing the necessary funding for renewable energy, energy efficiency, sustainable agriculture, water conservation, and pollution control projects, green finance helps mitigate environmental risks, reduce greenhouse gas emissions, and promote economic sustainability and resilience against climate impacts. Furthermore, green finance encourages businesses and governments to adopt more sustainable practices, fostering innovation and creating green jobs, essential for sustainable development and the well-being of future generations.
Aside from the real environmental and sustainability benefits, investing in renewable energy demonstrates their Environmental, Social, and Governance (ESG) methodology. ESG is a framework used by investors and companies to evaluate and report on the sustainability and ethical impact of an investment or business operation. A company that cares about the well-being of its staff and customers and the wider impact of its activities can leverage green finance as an opportunity for great press releases and marketing that showcases its green initiatives.
How do you finance renewable energy?
Financing renewable energy projects involves a blend of traditional and innovative financing mechanisms tailored to these projects' specific requirements, risks, and opportunities. Here are key strategies and instruments used to finance renewable energy:
Equity Financing. Equity investors provide capital to renewable energy projects in exchange for ownership stakes. This can include direct investments from project developers and venture capitalists, private equity firms, and specialized renewable energy investment funds.
Debt Financing. Loans and bonds are common debt financing tools. Banks, financial institutions, and bond investors lend money to projects, which is then repaid over time with interest. Green bonds, specifically designed to fund environmental and green projects, have become increasingly popular.
Government Grants and Subsidies. Governments often offer grants, subsidies, and tax incentives to reduce the capital cost and risk associated with renewable energy projects. These incentives can significantly improve the economic feasibility of projects by providing direct financial support or by offering tax advantages.
Public-Private Partnerships (PPPs). PPPs involve collaboration between government entities and private sector companies to finance, build, and operate renewable energy projects. These partnerships can leverage the strengths of both sectors to achieve project goals.
Project Financing. This non-recourse or limited recourse financial structure is widely used in renewable energy projects. It relies on the project's cash flow for repayment, with its assets, rights, and interests as collateral. Project finance isolates the project's financial risk without affecting the parent companies' balance sheet.
Feed-in Tariffs (FiTs) and Power Purchase Agreements (PPAs). FiTs guarantee a fixed purchase price for the electricity generated by renewable energy projects for a certain period. PPAs are contracts between an electricity generator and a purchaser (often a utility or large company) that agree to buy the generated power at a predetermined price, providing long-term revenue certainty.
Crowdfunding and Community Funding. Crowdfunding platforms allow individuals to invest small amounts of money for smaller projects. Community funding involves local investors or cooperatives pooling resources to finance renewable energy projects directly benefiting their community.
YieldCos. A YieldCo is a publicly traded company formed to own operating assets that produce a predictable cash flow, primarily from renewable energy projects. Investors in YieldCos benefit from regular dividends generated from the cash flow of operating assets.
Green Bonds and Climate Bonds. These are fixed-income securities that raise capital for climate and environmental projects. Issued by corporations, banks, governments, or financial institutions, green bonds are an increasingly popular tool for financing renewable energy projects.
International Financing. International financial institutions like the World Bank, International Finance Corporation (IFC), and regional development banks offer loans, grants, and technical assistance for renewable energy projects in developing countries.
Each financing strategy has advantages, risks, and suitability depending on the size, location, and type of renewable energy project. A mix of these financing mechanisms is often used to meet the comprehensive funding needs of a project, balancing risks and rewards for developers and investors alike.
What is renewable energy equity financing?
Renewable energy equity financing involves the sale of ownership stakes or shares in a renewable energy project or company to investors. These investors, which can range from individuals to institutional investors, become shareholders in the project or company and, as such, have a claim on future profits generated by the sale of renewable energy or related activities. Here's a closer look at how it works and its significance:
Ownership and Investment: In equity financing, investors provide capital in exchange for equity shares, essentially buying a part of the project or company. This capital infusion is critical for developing, constructing, and operating renewable energy projects such as wind farms, solar parks, and biomass energy facilities.
Risk and Reward. Equity investors typically assume a higher level of risk because their returns depend on the project's success. If the project performs well, investors can expect a portion of the profits in the form of dividends or an increase in the value of their shares. Conversely, investors may not recoup their initial investment if the project underperforms or receives lower returns.
Capital Structure. Equity financing is a key component of a renewable energy project's capital structure, alongside debt financing and, in some cases, grant funding. A well-balanced capital structure can optimize the cost of capital, reduce financial risk, and make a project more attractive to investors.
Advantages. For renewable energy companies or projects, equity financing does not require regular interest payments like debt financing, which can benefit projects with long development periods or uncertain initial cash flows. Additionally, bringing in equity partners can provide access to additional resources, expertise, and networks that can contribute to the project's success.
Market Attractiveness. Renewable energy projects have become increasingly attractive to equity investors due to growing environmental awareness, supportive government policies, and the declining cost of renewable technologies. This trend is reflected in the rise of specialized renewable energy investment funds, green investment platforms, and the growing interest of institutional investors in sustainable and ESG (environmental, social, and governance) investments.
Exit Strategies. Equity investors typically have various exit strategies, including selling their shares to other investors, selling back to the original owners, or through an initial public offering (IPO) if the company goes public. The choice of exit strategy can significantly affect the returns on investment.
Renewable energy equity financing is critical in scaling up renewable energy deployment worldwide by providing the necessary capital and sharing the financial risks associated with renewable energy projects. It is essential for accelerating the transition to a sustainable and low-carbon energy future.
