The EU-LAC Foundation has published a ground-breaking study on “Financing the transition to renewable energy in the European Union, Latin America and the Caribbean”.
The study, developed as part of the Foundation’s Open Calls for Research, was written by a group of authors that include: Miguel Vazquez, Michelle Hallack, Gustavo Andreão, Alberto Tomelin, Felipe Botelho, Yannick Perez and Matteo di Castelnuovo.
The transition to more sustainable energy systems has a variety of implications for the European Union (EU) and Latin America and the Caribbean (LAC) countries. These include: ensuring and diversifying electricity supply to an increasing population; the potential for job creation and economic and industrial development; and the fast technology advancements towards cost-effective solutions.
This study is focused on the analysis of financing mechanisms for renewable energy technologies in the EU and LAC countries. The aim is to compare experiences in the introduction of renewable energy in order to draw meaningful lessons, either from LAC countries to the EU or the other way around. This objective is not straightforward. For instance, feed-in-tariffs were a successful instrument for the introduction of renewable energy sources in Germany, but not to the same extent in Brazil. Dedicated auctions for wind power were successful instruments in Brazil, but not in Argentina. The same auctions were used in Brazil to introduce solar PV, with limited success.
Most of the research efforts that can be found in the literature have focused on the analysis of different mechanisms to enhance renewable energy projects’ revenue streams (feed-in-tariffs, auctions, etc.). However, in order to understand the whole picture, special attention needs to be paid to the financing challenges faced by investment in these new technologies. That is especially true in LAC countries, where financial markets are constrained. This study aims at complementing the existing literature by an in-depth analysis of the issue.
The study shows that, in order to develop renewable technologies, we need to take into account that the associated investment needs are significant and markets alone might not be sufficient to coordinate all actions to be taken. Moreover, given the variety of investment conditions across countries, including different characteristics of financial markets, there is no one-size-fits-all solution.
This study is structured around three main dimensions of the challenge of introducing renewable technologies in electricity industries, both in the EU and LAC:
• Public instruments to facilitate the participation of private capital in renewable energy projects;
• Technology flows between the EU and LAC; and
• Interaction between flows of capital and flows of technology (e.g. companies may provide financing in order to export technology).