Spring 2012

Policies for Financing the Energy Transition

Kassia Yanosek

Historically, energy transitions have occurred gradually over the span of several decades, marked by incremental improvements in technologies. In recent years, public interest in accelerating the next energy transition has fueled a clean-energy policy agenda intended to underpin the development of a decarbonized energy economy. However, policies to date have encouraged investors to fund renewable energy projects utilizing proven technologies that are not competitive without the help of government subsidies. A true transition of the energy mix requires innovations that can compete with conventional energy over the long term. Investments in innovative technology projects are scarce because of the “commercialization gap,” which affects projects that are too capital-intensive for venture capital yet too risky for private equity, project, or corporate debt financing. Accelerating innovation through the commercialization gap will require governments to allocate public dollars to, and encourage private investment in, these riskier projects. Policy-makers will face a trade-off between prioritizing policies for accelerating the energy transition and accounting for the risks associated with innovation funding in a tight budgetary environment.

KASSIA YANOSEK, a private equity investor in the energy sector, is a principal at Quadrant Management and founder of Tana Energy Capital LLC. She also serves as an entrepreneur-in-residence at Stanford University's Steyer-Taylor Center for Energy Policy and Finance. She is a member of the Steering Committee of the U.S. Partnership for Renewable Energy Finance (pref), which she cofounded in 2009; a member of the Council on Foreign Relations; and a participant in the World Economic Forum's Critical Mass Initiative for low-carbon energy finance.

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