The Role of Policy Driven Incentives : A Cross-Country Analysis
This paper presents new global evidence on the key determinants of public-private partnership investment in electricity generated by renewable energy based on a panel data analysis for 105 developing countries over a period of 16 years from 1993 to...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2012/07/16481342/role-policy-driven-incentives-attract-ppps-renewable-based-energy-developing-countries-cross-country-analysis http://hdl.handle.net/10986/11936 |
| Summary: | This paper presents new global evidence
on the key determinants of public-private partnership
investment in electricity generated by renewable energy
based on a panel data analysis for 105 developing countries
over a period of 16 years from 1993 to 2008. It aims to
identify the key factors affecting the private
investor's decision to enter renewable-based energy
generation, through a probit analysis and the amount of
investment sunk in this market segment, based on
Heckman's sample selection analysis. One of the key
results of the paper is that the market for renewable-based
energy is strongly driven by supportive policies. Support
policies serve not only to attract the entry of private
investors, but also to determine the level of investment. In
the latter case, its impact is less significant, suggesting
the need over time to revisit the power of the incentive
schemes, as well as the implied allocation of risks between
the public and private sector to ensure that feed-in tariffs
produce the desired amount of investment. In contrast,
broader economy-wide governance factors, including control
for corruption and degree of political competition, are
considered by private investors mainly for taking the
decision to enter into renewable-based generation. This
reinforces the expectation that private investors seem to be
adequately protected against their risks, so that once they
have entered the market, they can accommodate the governance
environment. Private investors in renewable-based energy
also require technical and regulatory certainty about the
availability of renewable-ready transmission resources, if
they are to finance investments. Private investors entering
the market look more at the size of the market rather than
the income level, whereas when determining the level of
investment they assess both the size and
"affordability" level. This raises some concerns
on the sustainability of support mechanisms and their
financing, particularly when the incremental costs implied
by renewable-based generation are passed through to consumers. |
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