United States

United States

Eliminating green risk

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To eliminate the financing risks of green pricing, policy makers should use short term customer programmes, a new report advises. An "annual participation" plan, for instance, could pay for a renewable energy facility without committing any customer funds beyond those specifically collected under a green pricing programme.

This suggestion is one of many from California's Lawrence Berkeley National Laboratory in its report "Financing investments in renewable energy: the role of policy design and restructuring" supported in part by the US Department of Energy.

Green pricing, which takes advantage of electric customers' willingness to pay a premium price for a "green" energy supply, has a risky financing side due to fluctuating customer participation rates. Still, the most widely used financing programme today is "sustained participation," where green marketers rely on long term funding commitments from customers. The report suggests how to reduce the risk in this type of financing, such as requiring longer term customer contracts or beefing up corporate financing. But annual programmes can eliminate risk since each customer's yearly contribution pays fully for the lifetime cost premium of the renewable resource.

As many US states re-evaluate existing renewable energy policies during electricity industry restructuring, the report aims to inform policy makers about the apparently ignored or misunderstood connections between project development and financing processes in renewable energy incentives. The authors write that carefully designed policies can reduce renewable energy costs by providing revenue certainty that will in turn reduce financing risk premiums.

Besides green pricing, the report covers key design issues for two other renewable energy programmes being considered in the restructuring process, including surcharge-funded policies and renewables portfolio standards.

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