Investment Advisory Facility - Background

Many RE and EE technologies are no longer considered experimental; they have been proven to work well in commercial settings throughout the world. However, even though such RE and EE investments are 'bankable', these technologies have not found widespread acceptance in the financial community.

Financiers follow an appraisal process for loan and investment proposals which consists of defining a risk-return profile that considers both the various project and sponsor risks involved, and the financial returns expected. When a proposal involves a new technology or business activity, the risk assessment needed is more rigorous and the information scarce.

The up-front transaction costs of evaluating such proposals are greater than for more conventional investments.

To secure approvals, besides being financially viable, sustainable energy investments must be as well documented as the conventional (and better understood) power sector investments. This is challenging for any new type of investment, let alone RE or EE projects which often have complicated risk/return profiles. After investing in 10 coal-fired power plants it is far easier for most banks to invest in an 11th than to consider a wind farm investment instead.

In the sustainable energy sector, the cautious attitude of financial institutions combined with their difficulty in correctly assessing the risks often lead to decisions against extending financing for otherwise sound projects. In the end, projects that might really be good investments and yield a global environmental benefit fail to go forward.

These up-front issues, or barriers, are the key targets of the RE/EE Investment Advisory Facility. If a financier is willing to invest time and Resources in considering a RE or EE project for investment, the IAF is able to buy down some of their incremental transaction costs.