Analysts warn markets biased against clean energy

Analysts warn markets biased against clean energy

Clean energy firms might be lobbying the wrong U.K. ministers when they seek market reforms to help drive green investment. Rather than focusing on energy policies, they should be seeking to reform the "institutionally fossilist" financial markets.

That is the stark message contained in a new report by Bloomberg New Energy Finance, which uncovered a litany of biases in financial regulation that tilt markets in favor of conventional energy and could potentially hold back the flow of investment into renewable energy technologies.

A white paper, published this week, identified seven major financial regulations that appeared to be dissuading investors from backing clean energy investments that tend to require high upfront investments.

Global clean energy investments have grown from less than $50 billion to more than $250 billion (£33 billion to £165 billion) a year in the past decade. However, 2012 was the first year that saw progress stall as investment dipped by 11 percent.

Michael Liberich, chief executive of BNEF, suggested the financial system was "institutionally fossilist" and "pervasively biased against clean energy and clean infrastructure investment in favor of incumbent technologies".

For example, BNEF found that wind and solar projects will be particularly vulnerable to upcoming Basel III regulations that limit the ability of banks to provide long-term nonrecourse project finance. Solvency II regulations, meanwhile, are likely to reduce insurance companies' appetites to back long-term investments.

The report also warned publicly quoted companies are still not legally required to disclose climate risks, such as the increased frequency and ferocity of extreme weather events, despite being required to report on numerous other material risks.

And it argued that rating agencies tend to focus on near-term quantifiable risks rather than catastrophic one-off events or longer-term systemic risks typically associated with climate change.

However, the report did find one instance where clean energy markets were not impeded by financial regulations. Renewable energy companies had feared that the Dodd-Frank Act would derail markets for renewable energy certificates and carbon offsets. But BNEF said the law has so far been harmless to the market.

This article originally appeared at BusinessGreen.com and is reprinted with permission.

Photo of two forms of energy in the same location provided by Dan Moeller via Shutterstock.