To further the dissemination of decentralized renewable energy in order to address climate change and access to energy in developing countries, finance is needed.  This paper presents a summary of available options for financing renewable energy development and alternatives for policy implementation to support this process. Debt and equity financing options are highlighted and selected policy frameworks for promoting investment in renewable energy project (REP) development are discussed as well. Specifically, the paper uses case studies of renewable energy programs in three different countries to examine financing possibilities and policy options for governments developing renewable energy programs. The renewable energy programs investigated in this study are the feed-in tariff program in Ontario, Canada, the clean energy auction program in Mexico and the renewable energy independent power producer procurement program in South Africa. While the three programs share a number of similarities, there are also some differences, in particular in the design of the renewable energy programs.              

A comparative analysis of these renewable energy programs showed that all three programs were implemented to diversify the energy supply mix, while reducing greenhouse gases, with an overarching objective of a transition to low-carbon energy systems as part of a broader agenda of fostering sustainable development through an increased supply of renewable energy. The study suggests that in establishing a renewable energy program, different renewable energy policies may attract investment. However, the design of the policy and the method of implementation are critical. In addition, the study finds that financiers mostly prefer to finance REPs using project finance as a means to alleviate investment risks while making reasonable returns on capital invested for project development. Finally, since most renewable energy programs focus on large-scale REPs to develop renewable energy programs, governments can learn from Ontario’s microFIT program and incorporate small-scale REPs into their programs.

Part of Series

CIGI Papers present in-depth analysis and discussion on governance-related subjects. They include policy papers that present CIGI experts' positions or contributions to policy debates, and background papers that contain research findings, insights and data that contribute to the development of policy positions.
  • Chijioke Oji is a post-doctoral fellow at the School of Environment, Enterprise and Development at the University of Waterloo. His current research focuses on developing innovative financing models for small and medium-scale renewable energy projects to alleviate the energy access challenge in developing countries and foster decentralized renewable energy production in developed and emerging economies.

  • Olaf Weber is a CIGI senior fellow and an expert on sustainability and the banking sector. He is currently a professor in the School of Environment, Enterprise and Development at the University of Waterloo and a University of Waterloo Research Chair in Sustainable Finance.