How do policies mobilize private finance for renewable energy?—A systematic review with an investor perspective

TLDR

Climate change urgency and billions spent on renewable‑energy support policies highlight the need to identify which policies effectively mobilize private finance, yet research over two decades has produced inconclusive results. This review examines 96 empirical studies to assess how policies influence two investor decision metrics—investment risk and investment return. The authors systematically analyze these studies, focusing on policy design features that affect risk and return. The review finds that policies are most effective when they simultaneously reduce investment risk and increase return, with credibility, predictability, and specific instruments such as feed‑in tariffs, auctions, and renewable portfolio standards playing key roles.

Abstract

With the urgency of climate change, and billions spent globally on renewable energy (RE) support policies, it is crucial to understand which policies are effective. Substantial scholarly research on RE deployment policies has been carried out over the last two decades, resulting in inconclusive findings regarding the effectiveness of mobilizing private finance. Here, we take a novel perspective and review 96 empirical studies concerning the impact of policies on two key investor decision metrics: investment risk and investment return. Only if both metrics correspond to the investors' expectations are they willing to engage in RE projects. First, our rigorous literature review shows that effective policies address risk and return simultaneously. Second, we find that generic instrument design features, such as credibility and predictability (continuous evaluation and monitoring), considerably impact investment risk. A more focused analysis of the specific design elements of feed-in tariffs, auctions and renewable portfolio standards reveals that these instruments are most effective when they are designed in such a way that they reduce RE project risk while increasing return. We distil important implications for policymakers who aim to foster renewable energy and clean technologies more broadly.