The UK’s Capital Markets Climate Initiative highlighted ‘policy risk’ as a potential barrier to renewable energy investment in developing countries. ‘Policy risk’ refers to policy changes by government that can affect the financial viability of projects, such as retroactive changes to feed-in tariffs.
DECC subsequently funded a study into options to address policy risk, focusing on renewable energy projects in Africa and Asia. The study assesses the extent to which policy risk deters investors, identifies existing mechanisms that can mitigate policy risk (such as partial risk guarantees and political risk insurance), and make recommendations to improve these mechanisms.
The study was carried out in the context of developed countries’ commitment to mobilise climate finance for developing countries. The UK provides climate finance through the £3.87 billion International Climate Fund. The study was carried out by Cambridge Economic Policy Associates (CEPA).