Policy contexts are unique and must be clearly understood so that domestic or international public instruments are used to tackle specific barriers and risks and to avoid potentially market distorting subsidies. Similarly, targeting public resources to de-risking green growth requires a sufficient level of institutional capacity to understand how the policy and regulatory framework impacts on commercial decisions and vice versa (Amin et al. 2014).
Clearly, making the transition to green growth implies shifting from economies with green niche products to mainstreaming green choices across all sectors of the economy. This means that public financial instruments for green projects should not be environmental side-lines but rather integrated into the existing policy context. In the transport sector, for example, this may mean differentiating existing vehicle taxes based on environmental characteristics of the vehicles and prioritizing public transport funding. For the buildings sector the existing building codes may need to be tightened for energy performance requirements and funds made available to implement the change.
In the case of CSP in Morocco, MASEN was established within the context of Morocco’s 2010 Renewable Energy Law alongside various other measures designed to develop CSP as part of an industrial strategy. The high level of public resource was therefore justified on the basis of this wider government strategy.
In Bangladesh, the Grameen Shakti program uses no direct public subsidies and is exceptional8 in not requiring collateral. The program’s success is largely attributed to the way it is integrated within the rural context of informal institutions and lack of end-user credit.
Coupling technical assistance for policy, regulatory and other institutional arrangements and capacity development with financial instruments, can help ensure better uptake and efficiency in implementation of public financial de-risking instruments (UNDP 2011).
Strengthening the capacity of financial institutions to support renewable energy and energy efficiency projects has been important in unlocking domestic sources of finance for low-carbon energy. In Tunisia, capacity building to strengthen the knowledge and expertise of domestic financial institutions in solar water heaters was an important component of the Government’s Prosol program, which led to significant leveraging of private capital (Trabacchi et al., 2012).
Development finance institutions, whether national, bilateral, or multilateral development banks, can be key players in helping to bridge understanding and maximize synergies between Governments and relevant market actors (Ecofys-IDFC, 2012; Smallridge et al., 2013). In India, technical assistance from Asian Development Bank to strengthen the capacity of Industrial Development Bank of India to appraise energy efficiency projects, combined with a loan to enable lending to such projects, was effective catalyzing investment in energy efficiency (Polycarp et al., 2013; IEA, 2011).
8. The vast majority of credit delivery financial systems require collatoral no matter the size and category of loan.