David Nelson

A methodology outlining how financial tools can be used to manage climate transition risk for corporate strategy and investment portfolios. The work outlines inputs to financial models to model the cash flow impact on companies and investment securities due to climate transition scenarios and their impact on economies, industrial sectors, and investment securities. The analysis develops financial product concepts, such as climate transition indices and derivatives.

For the Indian version of the Energy Transition Commissions, this analysis focusses specifically on the flexibility opportunities potentially available to balance renewable energy in India and the finance and policy needed to develop and integrate these flexibility resources.

In cooperation with the Shell Foundation, an exploration and evaluation of potential models for developing new energy company business models focussed on energy access and electrification. The analysis and methodology are based on opportunities in Nigeria.

In a project sponsored by the Advisory Finance Group of the World Bank, the Agence Francaise de Developpement(AFD) and the Development Bank of Southern Africa(DBSA), an assessment of risks to the South African economy and its financial system of a global economic transition to a low-carbon. Major risks covered include the impact on lost revenues from coal exports and infrastructure, the impact on the domestic energy sector, and the flow of risks through companies, lenders and others to the… Show more

In a project sponsored by the Advisory Finance Group of the World Bank, the Agence Francaise de Developpement(AFD) and the Development Bank of Southern Africa(DBSA), an assessment of risks to the South African economy and its financial system of a global economic transition to a low-carbon. Major risks covered include the impact on lost revenues from coal exports and infrastructure, the impact on the domestic energy sector, and the flow of risks through companies, lenders and others to the South African sovereign rating. Show less

Developed with and for the Advisory Finance Group of the World Bank, a basic framework for developing policy and investment strategies to minimize the risk adjusted cost of capital for infrastructure investments, using low-carbon energy investments as examples.

A working paper for the ETC, but also summarizing CPI workshops and presentations with Eurelectric, the International Renewable Energy Agency, the International Energy Agency, and others, this paper develops new concepts for electricity market design that would be more appropriate for renewable heavy electricity systems and would thus lead to lower financing costs and improved incentives to manage the system.

An update of the 2013 report on institutional investors and clean infrastructure, with some further focus on barriers to direct investment.

An in depth analysis of how a clean energy investment trust (CEIT) could be structured using asset diversification, insurance, O&M contracting, reserve funds, and novel investment structuring to reduce the cost per kWh of energy generated from wind and solar projects by 15-17%. The target investors include institutional investors seeking to match their assets and liabilities efficiently.

Working with the Energy Transition Commission (ETC), a collection of 30 major corporations, financial institutions, and non-governmental organisations, this research evaluates the total cost of electricity systems with near total shares of low carbon and renewable electricity supplies. The work focusses on developing and applying new sources of system flexibility to balance the electricity supply, and mechanisms to reduce the costs of the flexibility.

Assesses the structure, risk, and ultimate failure of US style “YieldCos” as a vehicle for renewable energy investing, identifying the conflict between sponsor incentives and investor needs among the structural errors that underpinned the sharp decline in prices of these vehicles.

The relationship between finance and policy stands at the centre of Germany’s twin objectives of reaching renewable energy deployment targets and doing so cost effectively. With the renewable energy industry maturing, and calls growing for improving the cost competitiveness of renewable energy policy, German policymakers and investors must continue to improve their understanding of how policy can influence the potential investment pool, and how policy can drive a robust and low-cost mix of… Show more

The relationship between finance and policy stands at the centre of Germany’s twin objectives of reaching renewable energy deployment targets and doing so cost effectively. With the renewable energy industry maturing, and calls growing for improving the cost competitiveness of renewable energy policy, German policymakers and investors must continue to improve their understanding of how policy can influence the potential investment pool, and how policy can drive a robust and low-cost mix of investors and investment to underpin the continued development of a cost-effective low-carbon energy system. Climate Policy Initiative examined the availability of capital for renewable energy, the cost-effectiveness of different mixes of capital and investors used in meeting Germany’s medium and long-term deployment goals, and the potential impact of policies on this mix of investment.

Our analysis indicates that, provided an appropriate policy framework is in place, there is more than sufficient capital available to meet German renewable energy targets, but that a mix of investors is needed to meet Germany’s objectives at lowest cost. To meet deployment goals most cost-effectively in the medium term, Germany must meet the challenge of creating electricity system flexibility to facilitate integration of renewable energy without imposing unmanageable risks on renewable energy investors.

More generally, for investors we find that the most relevant near-to-medium-term policy decisions regard incentive auction design, end user participation, support design and long-term targets. However, for the medium-to-long-term development of investment, issues including curtailment policy and energy market design will become increasingly important and merit immediate attention. Show less

– Working with the Brookings institution and the Global Commission on the Economy and Climate (New Climate Economy), this research identifies distinct finance needs for four different types of economies and compares developing countries with development banking systems (represented here by Brazil) with rapidly developing countries without national development banks (represented by India).

With the support of the European Bank for Reconstruction and Development (EBRD), a methodology for assessing and analysing the allocation of stranded assets and climate transition risks between governments, investors, consumers and others. The methodology is applied to 4 EBRD countries.

The first report, “Moving to a Low Carbon Economy: The Financial Impact of the Low-Carbon Transition,” compares the costs of low-carbon electricity and low-carbon transportation systems with current systems. The second, “Moving to a Low Carbon Economy: The Impact of Different Policy Pathways on Fossil Fuel Asset Values,” focuses on the risk of losses in the financial value of existing fossil fuel assets (so called “asset stranding”). A loss in assets’ value is critical because it constrains… Show more

The first report, “Moving to a Low Carbon Economy: The Financial Impact of the Low-Carbon Transition,” compares the costs of low-carbon electricity and low-carbon transportation systems with current systems. The second, “Moving to a Low Carbon Economy: The Impact of Different Policy Pathways on Fossil Fuel Asset Values,” focuses on the risk of losses in the financial value of existing fossil fuel assets (so called “asset stranding”). A loss in assets’ value is critical because it constrains governments and businesses’ ability to borrow against them to finance growth and investment, including investment in a low-carbon transition. The reports were commissioned by the New Climate Economy project as part of the research conducted for the Global Commission on the Economy and Climate. Show less

The Global Commission, advised by some of the world's leading economists, assessed how countries around the world can reduce the risks of climate change and achieve high quality, resilient, economic growth.

The finance chapter explores the role of that public and private finance can play in a transition to a low carbon economy for high, medium and low income countries, and evaluates opportunities that will arise out of the transition, and the potential costs, winners and losers as a… Show more

The Global Commission, advised by some of the world's leading economists, assessed how countries around the world can reduce the risks of climate change and achieve high quality, resilient, economic growth.

The finance chapter explores the role of that public and private finance can play in a transition to a low carbon economy for high, medium and low income countries, and evaluates opportunities that will arise out of the transition, and the potential costs, winners and losers as a result of climate changes risks. Show less

Electricity systems across the U.S. and Europe face significant challenges in the transition to low-carbon energy. While the transition provides plenty of opportunities for investors, businesses, and consumers alike, the current business and regulatory models of investor owned utilities (IOUs) and independent power producers (IPPs), which have mainly developed around competitive markets for fossil fuel generation, are particularly ill-suited to take advantage of these new… Show more

Electricity systems across the U.S. and Europe face significant challenges in the transition to low-carbon energy. While the transition provides plenty of opportunities for investors, businesses, and consumers alike, the current business and regulatory models of investor owned utilities (IOUs) and independent power producers (IPPs), which have mainly developed around competitive markets for fossil fuel generation, are particularly ill-suited to take advantage of these new opportunities.

The industry needs creative thinking, careful design, and a regulatory, financial, and structural push to reduce the cost and improve the value and reliability of the electricity system. Policymakers can help accelerate this transition by working with investors, electricity companies, financial regulators, and consumers to enable the development of new financing vehicles, redefine markets, and build new institutional structures for a 21st century low carbon electricity system. With these changes, the costs of renewable electricity can be lowered by up to 20%, customers can benefit from the value they can lend to the system, and new markets can reduce the cost of integrating new energy sources, and uses, all while improving reliability and accelerating innovation. Show less

Renewable energy financing in emerging economies faces particularly daunting challenges, but there are creative policy solutions that could potentially reduce the cost of renewable energy support by as much as 30%.

In this series, we look at two potential solutions:
•Reduce the cost of using debt sourced from the developed world: Index renewable energy tariffs to foreign currency, in so doing eliminate the currency hedging costs that are responsible for the largest share of the… Show more

Renewable energy financing in emerging economies faces particularly daunting challenges, but there are creative policy solutions that could potentially reduce the cost of renewable energy support by as much as 30%.

In this series, we look at two potential solutions:
•Reduce the cost of using debt sourced from the developed world: Index renewable energy tariffs to foreign currency, in so doing eliminate the currency hedging costs that are responsible for the largest share of the difference between developed world and rapidly emerging country debt costs.
•Improve the cost-effectiveness of domestic renewable energy support programs: Provide lower-cost debt through debt concession programs, which our research shows could lower the total cost of providing required support.

Many developing countries are looking to grow their renewable energy portfolios to meet environmental, economic, business, and energy security goals, particularly as the costs for these technologies are declining rapidly.
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In The Policy Climate, we offer an overview of policy issues relevant to climate change across the world. We find that the implementation of policy relevant to climate change, and its impact, accelerated markedly over the last decade, despite the slow pace of international climate negotiations.

In this project, we focus on:
1.Brazil, China, India, Europe, and the United States—These regions not only represent the majority of global greenhouse gas emissions but vary widely in terms… Show more

In The Policy Climate, we offer an overview of policy issues relevant to climate change across the world. We find that the implementation of policy relevant to climate change, and its impact, accelerated markedly over the last decade, despite the slow pace of international climate negotiations.

In this project, we focus on:
1.Brazil, China, India, Europe, and the United States—These regions not only represent the majority of global greenhouse gas emissions but vary widely in terms of economic development, natural resource endowment, political system, and climate policy, and can offer different lessons to policymakers;
2. The economic sectors that represent the greatest potential for greenhouse gas mitigation within each of these regions; and
3.A defined set of policy issues within these regions and key sectors that most affect climate change.

For each of the sectors covered in these regions, we provide stylized facts and data about emissions trends, as well as a summary of drivers for those emissions over the last 20 to 30 years. Since institutional and political issues are such an important factor in the climate story, we also include a summary of the most important political considerations and policy directions for each of the geographies covered, as well as highlight important policy issues that cut across geographic boundaries. In so doing, The Policy Climate also highlights important issues that form the basis of CPI’s work.
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Institutional investors, which together manage assets of over $70 trillion, often have investment objectives that are aligned with the investment profile of infrastructure. At first glance, access to this large pool of capital and the alignment of objectives should help lower the costs of financing renewable energy. In this study, CPI finds that while these investors could supply a significant share of the total required investment, various factors limit the extent to which they can invest in a… Show more

Institutional investors, which together manage assets of over $70 trillion, often have investment objectives that are aligned with the investment profile of infrastructure. At first glance, access to this large pool of capital and the alignment of objectives should help lower the costs of financing renewable energy. In this study, CPI finds that while these investors could supply a significant share of the total required investment, various factors limit the extent to which they can invest in a way that could lower the cost of financing renewable energy. Furthermore, financial regulation of institutional investors, regulation of energy markets, and renewable energy policy, often create additional obstacles to renewable energy investment.

Options for increasing institutional investor involvement include: removing energy and renewable energy policy barriers; improving investment practices at the institutional investors; modifying financial regulation and national pension policies; developing pooled investment vehicles for renewable energy projects; and, strengthening the role of potential corporate investors in renewable energy. Show less

India has ambitious goals for renewable energy. CPI’s analysis shows that while there appears to be a reasonable number of investors willing to invest in both debt and equity in renewable energy projects, the cost and terms of the debt available to finance these projects is a major problem, increasing the cost of renewable energy by up to a third compared to similar projects in the U.S. and Europe.

Further, we find that even if the cost of debt goes down, issues with loan terms, access… Show more

India has ambitious goals for renewable energy. CPI’s analysis shows that while there appears to be a reasonable number of investors willing to invest in both debt and equity in renewable energy projects, the cost and terms of the debt available to finance these projects is a major problem, increasing the cost of renewable energy by up to a third compared to similar projects in the U.S. and Europe.

Further, we find that even if the cost of debt goes down, issues with loan terms, access to low-cost equity, limits on foreign debt, and national banking practices are likely to present additional barriers for growth in India’s renewable energy sector in the medium and long term. Our report suggests some policy solutions that could reduce the cost of meeting India’s ambitious targets.
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What would it take to make renewable energy policy a success? To begin, policy needs to encourage enough investment at an appropriate financial cost. Policy can then set the conditions under which investment decisions are made, and these decisions determine whether policy objectives are met and at what cost.

In this new paper, CPI studied six large-scale renewable electricity generation projects in the United States and Europe to evaluate how policy affects project economics, as well as… Show more

What would it take to make renewable energy policy a success? To begin, policy needs to encourage enough investment at an appropriate financial cost. Policy can then set the conditions under which investment decisions are made, and these decisions determine whether policy objectives are met and at what cost.

In this new paper, CPI studied six large-scale renewable electricity generation projects in the United States and Europe to evaluate how policy affects project economics, as well as the cost and availability of financing.

The results of our analysis suggest that:
•The renewable energy projects studied would not have attracted investors without the help of policy support.
•In general, the financing and project costs that we identified are in line with published benchmarks for renewable projects.
•The duration of revenue support has the largest impact on financing costs.
•Revenue uncertainty is the second most important factor influencing financing costs.
•Investors’ perceptions of risk also significantly impact the financing costs of projects.

The ultimate goal of this analysis is to draw lessons that can be used to help policymakers design policies that help reduce the cost of financing for renewable energy.
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