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Getting the public-private finance balance right

A more gradual, but sustainable process needs to be put in place to encourage clean energy

De-risking investment in low carbon technologies is easier said than done, requiring a careful balance between public support and private finance, WEC 2016 delegates were told on Wednesday.

One of the biggest blocks to large-scale private investment in renewable energy has been uncertainty over the scale and duration of government policy, Jeroen Van der Veer, chairman of WEC's Supervisory Board, and the executive chair of Financing Resilient Energy Infrastructure at the ING financial group.

He said the risk that subsidies could be withdrawn in three or four years' time meant that projects, which often needed to be highly leveraged in the first place, had difficulty attracting backing.

The situation has been compounded by over-enthusiastic government support in some countries, designed to speed up the transition to renewable energy, but without the financial resources to maintain momentum. For example, both Germany and Spain's solar and wind energy frameworks have suffered as a result of attractive but short-lived availability of cheap feed-in tariff rates for renewables. These triggered a spate of construction followed by a collapse in the market.

A more gradual, but sustainable process was needed, panellists at the WEC session said, adding that a carbon tax or carbon pricing would need to be adopted on a much wider scale than has been the case so far-a process likely to fraught with political and implementation difficulties.

Tom Delay, chief executive of the UK-based Carbon Trust, which advises companies around the world on green strategies, said large-scale renewable projects had more chance of success if governments and project leaders devised comprehensive plans before seeking finance.

He said that uncertainties over issues such as the availability of grid connections and possible planning permission delays could be removed before a project got under way, that project could effectively be de-risked, making it much more attractive to investors.

Despite the clarity this would provide for the investment community, it was still quite rare for such comprehensive plans to be drawn up.

Given the pace of technological change now sweeping the low carbon energy industry and, in particular, the falling price of that technology, more investment is still likely to be attracted to the sector, even with the relatively high risk. However, investment in renewables has slumped this year from 2015 levels.

Even though investment last year was at record levels, the fall may still be a worry for clean energy industry.

However, this is no reason for complacency in the fossil fuels industry, where investment has also slumped. Delay said he had great faith in disruptive innovation, which has been a clear factor in the paths charted in many sectors. "Why would the energy market be any different?" he said.

The falling cost and growing capacity of energy storage solutions could be one such disruptive technology, as could carbon capture and storage (CCS). However, the latter would require either governments, the fossil fuel industry-or both-to invest heavily up front in developing the technology. That's something that has been rare on either side, so far.

Delay estimates that a carbon price of $100 per tonne or more would be needed to make CCS attractive to investors. But few believe that if a carbon price does come into effect that is designed to make a difference to the overall green investment climate it would be greater than around $40/t.

He says the onus is on the fossil fuel industry to lead the way on CCS, if it wants to safeguard its future by becoming regarded as a clean energy source.

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