Abstract
The lack of long-term financing, the low rate of return, the existence of various risks, and the lack of capacity of market players are major challenges for the development of green energy projects. This paper aimed to highlight the challenges of green financing and investment in renewable energy projects and to provide practical solutions for filling the green financing gap. Practical solutions include increasing the role of public financial institutions and non-banking financial institutions (pension funds and insurance companies) in long-term green investments, utilizing the spillover tax to increase the rate of return of green projects, developing green credit guarantee schemes to reduce the credit risk, establishing community-based trust funds, and addressing green investment risks via financial and policy de-risking. The paper also provides a practical example of the implementation of the proposed tools.
Highlights
The green credit guarantee scheme that this paper proposes is a tool for reducing the financial risk for private investors, as the green credit guarantee schemes (GCGSs) covers a portion of the risk. [26] discussed the possibility of financial de-risking by increasing the transparency and improving the laws and regulations
Using the spillover effects on green energy projects would increase the rate of return of these projects
public financial institutions (PFIs) should avoid the negative effects of government lending by engaging in long-term lending at stable rates and only lending where private banks cannot lend
Summary
In 2017 and 2018, the global investments (net capital flows) in renewable energy and energy efficiency projects reduced by 1% and 3%, respectively, and there is a risk that they will decrease even more [1]. The [6] proposal consisted of three major actions: (1) green certification of private and public financial institutions, (2) sustainability rating of project proposals, and (3) systematic monitoring of the performance of banks and the financed investment projects This means that, despite changing governments, this network will continue to carry out the activities and its mission. These solutions will help financial institutions to minimize and manage the risk of green financing They include developing green credit guarantee schemes for reducing the financial risk, utilizing community-based trust funds, introducing insurance mechanisms and de-risking to cover non-financial risks, and using the spillover tax to increase the rate of return on green projects.
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