Providing Incentives for Investments in Renewable Energy: Advice for Policymakers

Abstract

Relative to conventional power generation projects, investments in renewable energy — such as hydro, solar, wind, biomass, and geothermal power — usually have higher upfront capital costs and commercial risks as well as longer investment recovery. Because private investors typically focus on financial returns rather than social benefits, governments may need to support producers of green technologies. Policies can level the playing field between renewable energy projects and more financially attractive ones that lack environmental benefits. This note consolidates World Bank Group experiences with support mechanisms for renewable energy investments and identifies best practices for green policies, incentives, and administration.

Keywords: Tax Incentives, Green Energy, Renewable Energy, Carbon Tax, Investment Incentives, Environment

JEL Classification: K32, Q2, H2