16 October 2014: An environment working paper published by the Organisation for Economic Co-operation and Development (OECD) finds that renewable energy price-based support schemes, unlike quota-based schemes, are positively correlated with investors’ abilities to raise private finance. However, the authors suggest that, based on their findings, the design of the scheme (rather than price versus quota) will determine whether the right signal has reached investors.

The analysis, titled ‘Inducing Private Finance for Renewable Energy Projects: Evidence from Micro-Data,’ which covers the years 2000-2011, examines the effects of a range of government policies on renewable energy investment from private financiers. The so-called “inducement effect” is achieved when well-designed policies send a predictable signal and an effective incentive to investors, according to the authors.

In the absence of such policies, the paper finds that governments wanting to ensure project completion will have to depend on public finance, as the analysis of the “crowding in effect” shows that it is precisely those projects that have trouble attracting private sector investment that are targeted by public finance. In analyzing the effect of the direct provision of public finance on private finance flows, the authors find that price-based or quota-based support schemes are often ineffective in raising private finance for the projects in which public finance is concentrated.

The data set used in the study was derived from 87 countries and includes wind, solar, biomass, small hydropower, marine energy and geothermal. Data were pulled from the Bloomberg New Energy Finance (BNEF) database. [OECD Publication Webpage] [Publication: Inducing Private Finance for Renewable Energy Projects: Evidence from Micro-Data]