DEVELOPING RENEWABLE ENERGY IN ARCTIC AND SUB-ARCTIC REGIONS AND COMMUNITIES

CAPITAL DEVELOPMENT
RECOMMENDATION #8:
EXPLORE USING AN EARLY STAGE RENEWABLE ENERGY FUND
TO SUPPORT THE HIGH-RISK, EARLY STAGES OF PROJECT
DEVELOPMENT
RATIONALE AND BACKGROUND
Over the past twelve years, investments in renewable energy have demonstrated
remarkable growth. 50 New investments will increasingly be required if significant
gains are to be realized in new renewable energy development. Currently, a vast
majority of the existing energy infrastructure in the Arctic has been constructed
using national or sub-national public funding (in Canada, see ecoENERGY and
Arctic Energy Alliance’s Alternative Energy Technologies Program). While this
funding has been instrumental, there are limitations to the amount of public
funding available to support project development. In particular, funding directed
towards supporting the early stages of project development is far less common.
A possible strategy for enticing increased public investment in the early stages
of renewable energy development is to further attract private or local funding,
whenever possible, to buttress the public investment.
If designed correctly, publicly funded programs can play a positive and essential
role in attracting private sector or local investment. The challenge is to move
away from a direct-support grant-based model, to one where public finance
can be used innovatively to more successfully leverage additional third-party
investment. For example, funding the high-risk predevelopment stages of
a renewable energy project to improve the project’s economic viability can
help attract private funding and private partners during the construction and
operation phases of the project. This can be particularly important for projects
in more remote areas of the Arctic, where project economics are often marginal
at best.
CURRENT EXAMPLES
To incentivize geothermal energy utilization for space heating, the Government
of Iceland established the Iceland’s National Energy Fund in the late 1960s. This
fund provided a mechanism to offer low interest loans to municipalities or private
local developers for geothermal resource assessment. These reconnaissance
steps are the early stage and high risk/cost activities required to assess the
potential of a geothermal resource to support a district heating system. Under
this program, if the exploration efforts did not identify a viable resource, up to
80% of these costs are converted to a grant and thus, no cost was incurred by the
municipality or developer. If exploration is successful, the loan is then extended
to include the capital costs for developing the system.
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