Archive for August, 2011

The Clean Energy Finance Corporation and the Structure of Renewable Energy Project Subsidies

Monday, August 29th, 2011

by William Wild

The Gillard Government in Australia has introduced its carbon tax, and there is to be a Clean Energy Finance Corporation to subsidize renewal energy projects and technology. A few months ago I proposed a market driven structure under which such subsidies might be granted, and it is timely to revisit that now.

I am no free-market ideologue, but if there is one role to which government is least suited it is funding the development and commercialization of technology. Simply handing out large-scale research funding might easily create a bureaucracy that, far from enhancing development of the implementable technology, actually crowded out real commercially driven development.

The alternative is to directly subsidize individual renewable generation projects that might not otherwise, even with the effect of the carbon tax, be competitive with carbon-emitting generation. The capital subsidy would meet the difference between a project’s actual cost and the amount of capital it could raise on purely commercial terms to fund that cost.

The purpose of this note is to propose a general framework for capital subsidies that draws on the lessons of project finance to ensure that maximum societal benefit, in terms of increased renewable generating capacity, is gained from that investment by the government.

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