Financing Solar and Wind Power: Insights From Oil and Gas

Lead PI: Peter Davidson, Lawrence Rodman

Unit Affiliation: Center on Global Energy Policy (CGEP)

March 2017 - Ongoing
North America ; United States
Project Type: Research Outreach

DESCRIPTION: A new report from the Center on Global Energy Policy analyzes whether the success of the oil and gas industry in raising capital could provide insights to help the solar and wind power industries expand. Authors Travis Bradford, Peter Davidson, Lawrence Rodman and David Sandalow explore the scale of the investment need in solar and wind power, sources of capital to date and similarities and differences between oil and gas assets and solar and wind power assets. Based on this analysis, they suggest three possible new financing tools for solar and wind power projects, drawn from the similar tools in the oil and gas sector:

Renewable resource based finance
Reserve based finance is an established tool for financing oil and gas development, with oil and gas reserves providing the asset base and security for loans. Based on this model, solar and wind resources at a project site could be evaluated for the potential to provide an asset base and security for debt financing.

Electricity production payments
Volumetric production payments are another established financing tool in the oil and gas sector, with capital providers making a development stage payment in exchange for the right to receive proceeds from future oil and gas production. Based on this model, capital providers could consider making current payments to fund solar and wind power project development in exchange for the right to receive proceeds from the future sale of solar or wind power at a site.

Capacity payment finance
In both the natural gas pipeline and electric utility industries, customers often pay for the right to use an asset when needed (a capacity payment). Capacity payments can be available for solar and wind power assets, subject to limitations, and could be considered as a separate revenue stream to help support debt financing.