Public investment can take the form of investment funds or guarantee facilities.   Public fund can also be used in public-private partnerships to support infrastructure development or business formation.   Public funds can also be used to promote technical research, standards development, and public awareness. 

In some European countries and in several U.S. states, public funds for renewable energy development are raised through a levy (a per-kWh fee) on electric power consumption or fossil-fuel-based power generation.

Investment Funds

In general, the funds serve a variety of purposes, such as paying for the difference between the cost of renewables and traditional generating facilities, reducing the cost of loans for renewable facilities, providing energy efficiency services, funding public education on energy-related issues, providing low-income energy assistance, and supporting research and development.

In many U.S. states, public funds for renewable energy development are raised through a System Benefits Charge (SBC), which is a small fee paid by all electricity customers based on their level of consumption, e.g., 0.2 cents/kWh.   These charges, typically state-level programs developed through the electric utility restructuring process, are used to create Public Benefit Funds that are a means to assure continued support for renewable energy technologies, energy efficiency initiatives, and low-income support programs.    Public Benefit Funds are most commonly used to fund programs such as: R&D on renewable energy; rebates on renewable energy systems; and development of renewable energy education programs.

Sixteen U.S. states now have such charges, and it’s estimated that they will collect and invest over $3.5 billion through 2011 in various programs.  In the U.S., the DSIRE web site provides detailed information on all such state incentives at http://www.dsireusa.org/.   

As an example, the state of California manages its renewable energy funds through the four distinct programs:  

1. Existing Renewable Facilities Program, which has two tiers: (a) biomass and solar thermal, and (b) wind.  This program supports the maintenance of existing renewable energy projects using a $/kWh production credit mechanism.
2. New Renewables Program, which supports prospective new renewable electricity generation projects. These projects must be brought on line within five years, and funds are provided as a $/kWh production credit.
3. Emerging Renewables Program, which provides rebates to eligible technologies -- photovoltaics, solar thermal electric, fuel cell technologies that use renewable fuels, and wind turbines up to 50 kW.  Rebates are provided to performance-based systems of 30 kW or greater.  Program rebate levels are reduced over time.
4. Consumer Education Program, which provides funds to promote renewable energy and help build the market for emerging renewable technologies. 

In Massachusetts, the system benefit fund established six areas of programmatic focus: 

1. Green Power - Add 750-1,000 MW of clean energy to the New England grid by 2009, remove barriers to the development of renewables projects, and facilitate development of wind in northeast.
2. Green Policy Development - Facilitate significant policy change which will advance the renewable energy agenda, particularly in Massachusetts, but also on the federal level.
3. Renewable Energy Industry Support - Develop a comprehensive industry support program to ensure that renewable-energy companies thrive and create new green jobs in Massachusetts. 
4. Education & Public Awareness - Educate the next generation through school curricula and museum resources, capitalize on Massachusetts’ universities, deliver the message to industry and opinion leaders, and create a renewable energy vision for MA citizens. 
5. Community Outreach & Siting - Work with communities and regions within the Commonwealth to create the tools and resources needed to understand the renewable-energy environment.
6. Green Buildings and Schools - Develop new guidelines and standards to facilitate market transformation through demonstrations resulting in $2 billion on new and renovated high performance buildings.

Guarantee Funds

Guarantee funds are a way of leveraging public funds to stimulate loans for financially viable projects.  They are often used to support small and medium enterprises that have the necessary repayment capacity but who, for some reason, cannot obtain a bank loan without the support of the guarantee fund.   For renewable energy projects, a perceived technology risk is often the principle motivation for guarantee funds.   However, a guarantee fund can also be a substitute for collateral or for lack of a track record by the borrower.

Guarantee funds offer risk-sharing and seek to motivate financial institutions to explore new market segments¹ .  The success of guarantee funds depends largely on their design, i.e. how incentives and sanctions are set and how the fund is governed.  The critical elements are risk sharing arrangements, eligibility criteria, staffing and internal reporting and control systems.