Risk mitigation and transfer for renewable energy investments: a conceptual review
This report reviews and examines the use of risk mitigation and transfer (RMT) instruments in private utility-scale renewable energy investment. The trillions of dollars needed to achieve global climate goals are more than an abstract number. They need to be channeled through viable projects that result in desirable outcomes, such as renewable energy infrastructure in developing countries. At the same time, the complexity and barriers faced in the project development and finance process are often underestimated. The perception of risk, for example, is an important barrier to private investment in developing countries. As such, one of the most relevant interventions is to reduce or transfer risk faced by investors. In this report, the authors look at risk-related interventions in renewable energy investments, particularly from the perspective of developers. First, the authors review the literature and concepts related to the role of risk, the cost of capital, the project development process, and the investment selection process. They then further explore the types and relevance of risks faced by renewable energy investors and examine the use of risk mitigation and transfer (RMT) instruments in private utility-scale renewable energy investments, presenting evidence of the effectiveness of RMT in practice.