Promoting Renewable Energy Through Adaptive Prudential Regulation in Financial Services

Abstract

Promotion of renewable energy has become one important priority in the political agenda worldwide. However, financing of renewable energy projects, especially the small-scale ones, is not always streamlined and banks may not always be willing to invest in such projects. This fact is accentuated by the current credit crunch. To overcome this challenge; foster competition; and improve liquidity and diversification of financing opportunities in renewables markets, this paper argues for the adoption of less stringent prudential regulations for those financial service suppliers intending to supply the entire gamut of financial services exclusively in the area of renewable energy. The paper’s underlying syllogism is that the creation of differentiated categories of renewable energy financial service suppliers (REFS) which will have to comply with varying prudential requirements based on such criteria as the type of business activities pursued; the total output of the company; the value of service transactions; or the systemic risk potential will be beneficial for the area of renewable energy and ultimately the combat against global warming.

JEL Classification: F13, F18, G15, G21, G28, K32, K33, Q27, Q28, Q48