Government guarantees needed to support energy investments

Posted on 15 October 2013

A total of $37 trillion is needed for energy investments by 2025, or roughly $1.5 of the $12 trillion in new capital that is raised every year, the World Energy Congress was told on 15 October.

The solution to liberating the “ocean of capital” to finance energy projects is close collaboration among the science sector, governments, and capital markets, said Rowan Douglas, Chairman of the Willis Research Network. Douglas asserted that if there is long-term stable policy along with “enough data and a big enough [data] set you can package risk in ways that people can accept.” He added, “If we can come to a set of mutually understood truths I think we can understand risk within tolerable parameters and liberate capital.”

Joined by Prince Michael of Liechtenstein and Michael Eckhart, Managing Director & Global Head of Environmental Finance and Sustainability at Citigroup, the group suggested that public funds should be used to lower the risks and open the floodgates to private finance. “90% of the risk in the energy sector is political or market risk,” said Eckhart, who proposed that governments should insure the outcome, so if an investment is made and energy provided, the investor knows they will be paid. “That removes the risk for capital to flow into the sector,” he added. “If the World Bank or development banks would provide some finance as an insurance for other banks to invest in green projects, it would provide a big boost and help capital flow,” said Prince Michael of Liechtenstein.

 

This news story is based on the session What Does It Take?, “Financing energy: Managing risks and complexity” at 2013 World Energy Congress.