4.1. Identification of Investment Barriers
While most of the reviewed studies investigated only one barrier-theme (as defined in this study), a small number of papers took a broad approach to try and identify the full set of barriers to investment through literature reviews and/or interviews with experts. Through 14 interviews with experts, one study [43
] identified cost barriers, communication barriers, fiduciary duty barriers, and poor communication from government over policy as the most prevalent (note these specific barriers did not appear in the title, abstract, or keywords and were therefore not reflected in the tables in Section 3
). Gatzert and Kosub [58
], using a non-systematic literature review of both academic and practitioner papers, found technical knowledge, technology risk, complex policy landscape, crediting worthiness of counter parties, and policy uncertainty or stability as key barriers to investment.
Taking a life cycle view of renewable infrastructure, one study [60
], through a non-systematic academic literature review, identified different barriers at each stage of development. This includes the need for long term policy stability, institutional barriers (related to policies in favour of fossil fuels), and general economic or financial barriers (such as requiring subsidies) for less mature technologies, while planning and administrative approval and public acceptance were more important for more mature technologies. Exploring the integration of renewables into the European electricity market in more detail, Hu et al. [61
], through a snowball literature review, find a range of barriers, including path dependence (fossil fuel dominance in the existing market), lack of knowledge, transaction costs, public acceptance, and accountancy practice (notably, discounting of future asset values).
One paper found the main barriers as a “lack of a mature community of investors, mismatches between investment and fund manager timescales, and lack of suitable investment vehicles” alongside structural barriers of “skill-base; long-term-nature of investments” [62
]. They proposed that the lack of appropriate solutions to these barriers was due to the theoretical frameworks used to analyse and therefore a new theoretical framework called ‘adaptive market hypothesis’ was needed as a better perspective to analyse energy finance and develop solutions to these barriers [62
Interestingly, one paper [63
] also identified a number of technological, economic, social, or public barriers which overlap well with the barriers identified in the policy reports and the other papers identified. However, at least in the case of wind power in Saskatchewan, Canada, these barriers could be ‘explained in large part by knowledge barriers’ [63
], as opposed to being real barriers. They stress that understanding the underlying source of the barrier is needed before solutions are proposed and implemented, although it could also be argued that solutions to perceived barriers may also tackle the perception of a barrier even if that barrier is not real.
4.2. Theme Analysis
Fifty-five papers were identified as exploring a specific set of barriers to investment in climate change solutions as defined in this paper as opposed to identifying a broad set of barriers (as the papers in the previous section did) or proposing solutions to presumed barriers (as the papers in the next section do). The following explores each of the themes (as defined in Table 2
Almost half of these 55 papers identified policy stability or uncertainty as a key barrier (for example, see [64
]). Evidence of the importance of policy stability is already found through data linked to changing policy environments, including the production tax credit in the United States [51
], public sector investment from the Australia Renewable Energy Agency [65
], on-shore wind regulation across Europe [48
], and solar feed-in-tariffs [52
]. The termination of policy, especially when retroactively done, is often singled out when discussing policy stability/uncertainty [71
]. Ensuring policy is designed to be as efficient and effective as possible is key so as to avoid over-subsidising technologies which, in turn, leads to higher costs for government and, therefore, an increase in the likelihood of changes in policy [73
]. However, one paper has argued that policy uncertainty could, in fact, be beneficial to investments [74
] as it ‘provides higher expected consumer surplus and lower expected electricity price’.
When policy is implemented, the accountability around enforcement also needs to be clear or the lack of proper governance is often seen as a barrier [75
]. For example, uncertainty in the renewable energy target in Australia [65
] has seen several projects stall [78
]. The issue of transparency and disclosure is highlighted as critical when attempting to demonstrate additionality in investments that attract carbon credits or benefit from other policies associated with greenhouse gas emission reductions [79
]. Transparency, disclosure, and enforcement are of course linked through a strong governance environment.
While the lack of a global price on carbon has become less of a factor in the policy reports (partly due to the failure to deliver a global price on carbon under successive climate change agreements), the uncertainty around future carbon prices and policies that deliver a carbon price still feature in the academic literature [80
The lack of long-term policy stability is particularly linked to the longer timescales of returns for a renewable infrastructure asset [82
]. Indeed, when individual retail customers are a key source of investment, they often seek long term investments and then rely more on their ‘gut feeling’ to judge the risk associated with those investments [85
]. However, the lack of policies to encourage investment for some climate change solutions [86
] or an overly complex policy environment [66
] is potentially more of a barrier than policy uncertainty.
The causes of policy risk are also explored [90
] and identified as economic stress, public acceptance of high costs (associated with providing subsidies), changes in the ideological approaches of government, and the autonomy of regulatory agencies. In addition, the pressure to change policy as the market for particular technologies mature and their costs lower was also highlighted [91
]. Even if policy uncertainty were to reduce in particular countries, different countries implement different policies [92
], so investment strategies are more difficult to develop globally.
While the issue of existing policies being in favour of fossil fuels [65
] was not explicitly discussed in some papers the path dependency [11
] of the economy was often mentioned as a key barrier. A potential contributing factor to this barrier was highlighted as the strength of existing corporate, monopoly, or special interest lobbies and the vested interest of such groups, which, in some cases, could see investment into climate solutions redistributed to compensate for a shift of investment away from these assets [88
The legal requirements on certain investors (such as the financial regulations Basel on banks or Solvency on insurers) can make investments more expensive in renewables [95
]. In addition, the use of traditional accountancy methods in evaluating investments may favour conventional energy over high capital cost renewable technologies, especially when combined with biased perceptions within the investor community of higher risks associated with new innovation [96
]. However, the general lack of awareness of certain technology solutions [86
] or a lack of expertise or track record in designing new financial vehicles [80
] within the investment community is also seen as a barrier. Linked to this general awareness is often a lack of trust between investors, policy makers, and technology developers [98
] that would only improve as the market matures.
Higher up-front capital requirements [50
], when compared to traditional energy assets, represent a specific barrier for renewable energy infrastructure. High initial costs often include an expectation of higher returns over the lifetime of the investment to compensate for the additional risk that this initial investment represents [11
]. Indeed, the question of whether a renewable energy investment should be seen as an infrastructure or a private equity investment and the different expectations of returns for these two asset classes is important here.
Higher costs also highlight a particular barrier associated with asymmetric information [101
] between the government and the investor, resulting in the need for subsidies or other policy intervention to take this into account. Higher initial costs also link strongly to the need for policy stability over the life time of the investment [102
]. While some argue that investment into research and development will lower the costs of renewables [103
], this of course ignores the inherent difference in investment profile given that traditional energy assets also include significant operational costs (associated with fuel costs and other operations). Others [104
] explore whether the high initial costs actually demand a reform in the power sector and the need for different types of investors, although these changes would create their own barriers.
Alongside these higher costs technical barriers exist [81
], or at least are perceived to exist [97
]. The speed of increase in deployment of renewable infrastructure often means that they are untested at large volumes over long periods of time, leading to the specific performance of individual technologies being less well understood. A particular aspect of immature policy environments, with respect to new technology, is the lack of joined up policy from the research phase of technology development to its large-scale deployment in the field. Often called the ‘valley of death’, the lack of available investment between high risk venture capital and lower risk private or corporate financing clearly hinders the large-scale growth in climate change solutions [105
]. While many of the other barriers identified exist for all types of energy infrastructure, the technology risk associated with renewable infrastructure is specific to each type of technology. However, it is important not to underplay these general barriers as they are often more important [106
]. With the relative immaturity of the renewable infrastructure investment market, cash flow uncertainty and unreliable supply chains [107
] are often identified as prominent barriers. The lack of track record within the finance market given the lack of a mature investment market is another barrier [108
While the policy reports mostly focus on the lack of appropriate large scale finance vehicles (fund of funds, public-private partnerships, funds operated by intermediaries with a long term history), one paper also highlighted that financial incentives should be structured to overcome the barrier associated with creating small scale finance vehicles that would be appropriate to attract citizen or community investors in local projects [109
]. New types of finance vehicles are also proposed as a solution to the barriers associated with high transaction costs, particularly those associated with decentralised renewable energy [99
Four barriers identified in the academic literature that were not a clear focus in the policy reports were the issue of grid connectivity, intermittency, public acceptance, and environmental liability. As renewables often only operate under certain conditions (the need for wind for wind turbines or sun for solar photovoltaics), they provide intermittent power and this can often be seen as an inherent barrier to scaling up the deployment of these technologies [58
]. Issues associated with grid connection were also highlighted either because of the issue of intermittency, the costs associated with multiple small-scale developments connecting to the grid, or local congestion on the grid where renewable deployments have occurred [46
]. Both intermittency and grid connectivity could be classed under technology risk. Associated with the installation of wind farms in particular, the issue of public acceptance was much more strongly emphasised in the academic literature as a potential barrier [46
]. The risk “arising from liabilities to third parties due to potential environmental damages” [48
] was also identified as a potential barrier to investment. This barrier is particularly uncertain given that the environmental impact of wind, hydro, or solar infrastructure has not been rigorously tested either in the field or in legal processes. The physical risk of damage from severe weather to infrastructure was also mentioned in one paper [58
Finally, the specific barriers associated with deploying renewable technologies on brownfield sites, particularly the risks associated with those sites being contaminated, was highlighted [112
4.3. Testing Barriers Through Implemented Solutions
A number of the papers identified, while acknowledging the existence of barriers, mainly explore the differences between the effectiveness and efficiency of particular implemented policies (proposed solutions). For example, a number of papers [113
] examine Feed-in-Tariffs, carbon tax, trading schemes, green certificates [117
], energy performance contracts [118
], and renewable standards. Indeed, two papers examine implemented policies to propose an optimal mix of policy solutions to enable the scaling up of renewable technology deployment [119
], while one proposes a real options analysis tool for investors to use based on the different types of uncertainty they are faced with [47
Many papers explore very specific issues associated with policy design, including exploring the use of price floors in trading schemes [121
], showing that voluntary initiatives alone are not sufficient to drive investment [122
], and using a Canadian case study to provide guidance on improved public consultation in wind farm development [123
]. The particular deployment of a technology or deployment within a country are presented as case studies in some papers [49
]. Four papers present different investment vehicles that may provide some of the solution to mobilising capital, including the use of equity indices [126
], bonds [127
], or the need for a better blending of public and private capital [128
]. Taking a much more theoretical approach, solutions to emission externalities, knowledge spillovers, and capital market imperfections are also explored [130
In all these solution papers, the barriers to investment that these policies are aimed to address are not always explicitly identified, so while it may be possible to discuss which policy is perceived to be better it is not always possible to confirm that they are actually needed.
A small number of the papers identified focussed on the demand side of energy and, in particular, explored barriers to new technology adoption in the construction sector [131
], small and medium sized enterprises [133
], or energy efficiency [134