Developing Innovative Energy Infrastructure Financing
November 18, 2011
Washington, D.C.
Communities around the country are looking for new avenues to promote job creation. But since government budgets are shrinking and the financial sector is increasingly risk averse, what will jumpstart economic growth? And what types of innovative investment products can help?
One answer - supported by economists on both sides of the aisle - is to scale up both public and private funding for infrastructure development. The energy sector, for example, could benefit from substantial investment. There are currently huge unmet needs, from updating the nation's aging electricity grid to creating improved distribution networks for renewable products. But the right government incentives must be structured to deliver financing at the right times to the right companies.
To address the challenges in financing energy infrastructure, the Milken Institute, in conjunction with the U.S. Department of Agriculture's Office of Energy Policy and New Uses, convened a group of energy experts, financial and corporate investors, bankers, scientists, technologists, U.S. government representatives and researchers from national laboratories.
Participants discussed successful models of infrastructure finance that could be replicated in the U.S. energy sector, from the debt and equity products offered by the Overseas Private Investment Corporation (OPIC) to the structured and project finance mechanisms leveraged by the Export-Import Bank, to successful programs run by state governments. Learning from best practices in other industries and regions, these mechanisms would facilitate long-term, low-cost financing for energy infrastructure development, impacting rural communities and urban areas alike.
The Lab served as a useful platform to refine new and existing investment models as well as credit enhancements and other risk-mitigation tools that can be deployed to finance large-scale infrastructure projects. The session examined how each model could impact the entire value chain, noting that each stage of technology innovation has specific financing needs.
Following the Lab, participants reconvened for smaller working sessions to further explore potential models and products discussed during the initial session. Ideas suggested included a green bank and a one-stop financing facility.
Results from the Lab, including recommended next steps for implementation, can be found here. For more information, contact Caitlin MacLean, manager of Financial Innovations Labs, at cmaclean@milkeninstitute.org.
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