FINANCIAL INSTRUMENTS AS A DRIVER OF RENEWABLE ENERGY DEVELOPMENT
DOI:
https://doi.org/10.32782/ecovis/2025-3-9Keywords:
financial instruments, renewable energy, investment policy, CfD, FIT, green bonds, blended finance, WACC, LCOE, bankability, risk mitigationAbstract
In the context of the accelerating global climate agenda and the commitments outlined in the Paris Agreement, renewable energy (RE) plays a crucial role in decarbonizing the power sector. However, the capital-intensive nature of RE projects, combined with long payback periods and high upfront costs, limits the flow of private investment, especially in emerging and transition economies. Therefore, the development and effective application of financial instruments that can de-risk projects, reduce the weighted average cost of capital, and enhance bankability are essential for unlocking investment at the required scale and pace. This article explores the economic essence and functional role of such financial instruments in promoting the deployment of RE technologies. The study systematizes approaches to classifying financial instruments based on three key dimensions: (1) the source of financing (public, private, blended), (2) the point of intervention in the renewable energy project cycle (development, construction, operation), and (3) the economic channel of impact (capital cost reduction, revenue stabilization, risk mitigation, liquidity and refinancing). A detailed typology of instruments is provided, including investment grants, tax incentives, feed-in tariffs (FIT), feed-in premiums (FiP), contracts for difference (CfD), green bonds, power purchase agreements (PPA), political risk insurance, currency hedging, and first-loss capital in blended finance schemes. A conceptual classification matrix is proposed that maps instruments against their functions and points of application within the RE project lifecycle. Particular attention is given to how different mechanisms reduce investment risk and enable access to more favorable financing conditions. The proposed matrix can be used as a practical analytical tool for governments, development institutions, and researchers to design targeted support schemes for RE investments. Empirical illustrations from Ukraine are provided to demonstrate the practical relevance of the framework in a high-risk investment environment.
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