Policy analysts CPI Energy Finance has designed a financial mechanism for pension funds and insurers that it says removes barriers to direct investment in renewable energy and could reduce green electricity costs by 17%.
CPI said its design for a clean energy investment trust (CEIT) offers an investment-grade vehicle to hedge long-term liabilities and provide higher rates of return than bonds.
The CEIT could increase investment in renewable energy, such as wind and solar, to almost $4 trillion from $305bn, CPI said.
The mechanism works by allocating risks to those best able to manage them, the analysts said.
It splits cashflows from a project into separate investment groups that can be “sold to the investors who value them the most”, CPI added.
The groups include construction finance, CEIT while the asset is under a fixed price contract, surplus cashflows during the fixed contracting period and post-contract cashflows.
CPI Energy Finance executive director David Nelson said: “The CEIT mechanism breaks apart the traditional utility model of financing which is no longer fit for purpose for a high renewables scenario.
“By unbundling this model … we can drive capital more efficiently towards a future energy system that is not only low-carbon, but also low-cost.”
CPI said the CEIT is supported by the Rockefeller Foundation.