Reducing the risk (de-risking) of investment in renewable energy projects is a critically important step to decarbonizing energy systems to prevent dangerous climate change, with three major components: technology risk, development risk and pricing risk. Addressing each of these risk profiles helps investorsâ€”utilities, banks or other institutions, find the necessary will to invest in renewable projects.
Renewable energy technologies have high initial costs but then cost very little to operate, because they do not require fuel. One consequence of this capital-intensive nature is that renewable energy is very sensitive to the cost of capital, that is, the interest rates or return rates demanded by those who lend or pay for renewable energy technology up front. For example, high interest rates can significantly increase the overall cost of a wind farm.