A new report addresses the current gaps in clean energy financing, offering recommendations to
address the so-called “Valley of Death” financing
shortfall that occurs before a clean energy technology can achieve
commercial viability.
The non-profit Clean Energy Group (CEG), with the support of The Annenberg Foundation, commissioned Bloomberg New Energy Finance to join in the study, which examines the shortage of capital for clean energy technologies that require extensive and expensive field-testing before being deployed.
Bloomberg New Energy Finance and CEG conducted over 60 open-ended interviews with technologists, entrepreneurs, project developers, venture capitalists, institutional investors, bankers and policymakers from 10 countries across the globe to provide solutions on how to address the “Valley of Death” phenomenon.
Michael Liebreich, Bloomberg New Energy Finance chief executive, said, "In the past few years we have witnessed a pre-Cambrian explosion of technologies offering possible routes to reducing the cost of low-carbon energy by an order of magnitude. However, for these technologies to achieve their potential, they must first be tried at commercial scale. The lack of project financing for the first few commercial-scale projects – the so-called Valley of Death – has been a very significant obstacle until now. We undertook this study with two goals in mind: first to survey and measure the Valley of Death; and second, to examine financial and policy mechanisms which could create a bridge across it. We hope it can help to break the logjam stopping new technologies that could change the world from getting to market.”
The report identifies two critical locations where a shortfall of capital often comes into play. The first occurs early in a technology’s development, just as it is ready to exit the lab. The second occurs later, when much more substantial levels of capital availability are needed to prove the viability of a new technology at commercial scale.
The problems posed by this commercialization funding challenge represent fundamental, structural market shortcomings that most experts believe cannot be resolved by the private sector acting on its own. Even in good times, when lending standards are most flexible, banks and other financial institutions are simply not structurally positioned to back large-scale projects deploying new technology.
The paper identifies three probably solutions that are particularly novel and worthy of immediate further study:
- Emerging Technology Reverse Auction Mechanism: A public sector body would encourage developers of projects that employ novel technologies deemed to hold special promise to “bid in” alongside others in a competitive process to win under an offered fixed tariff cap.
- Efficacy Insurance: Commercial insurers with appropriate levels of technical expertise could assess and support cutting-edge technologies too risky for conventional insurance coverage with “efficacy insurance,” potentially receiving support for a portion of their risk in the form of publicly guaranteed or funded reinsurance pools.
- A Government-Backed Commercialization Finance Investment Entity: A similar concept is currently under consideration by the U.S. Congress in the form of the Clean Energy Deployment Administration (CEDA). Seeded with federal dollars and perhaps leveraged via a “delegated investment authority” partnership with already-engaged private sector institutions, CEDA would be expected to make investments in projects that help advance key clean energy technologies deemed in the national interest.
A copy of the report can be downloaded for free at the link below.
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Very useful Richard!