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What are the Different Types of Renewable Energy Financing?

Ken Black
Ken Black

A number of different ways exist to finance renewable energy projects and research, which include government grants, private grants, and venture capital investments. Renewable energy financing can also be done by a private individual wishing to finance the entire endeavor alone. Advantages and disadvantages exist for each option. Those who are seeking renewable energy financing should carefully consider the costs and opportunities available from each avenue, and then pick one or more based on that analysis.

An individual or corporation wanting to sponsor the entire project may have the advantage of not having to listen to anyone else, but also assumes a great deal of risk. The start-up costs for renewable energy projects can be extraordinarily high. The technology is often expensive and the equipment needed may not be readily available on the market. Whether one is planning an entire renewable energy electrical generation plant, or a smaller business such as a wind turbine manufacturing facility, the costs are still going to be very prohibitive from all but the most wealthy of companies and individuals.

A wind farm that's used to make renewable energy.
A wind farm that's used to make renewable energy.

Venture capital is a type of financing vehicle set up specifically to help start-up companies, and those who are researching newer technologies. As such, venture capital is often a very popular renewable energy financing option. The types of investors interested in venture capital projects are often looking for exactly what renewable energy projects represent. These projects have a potential of offering a high reward for those willing to risk it.

A closeup of a solar panel.
A closeup of a solar panel.

Private groups and individuals may also offer private grants as a means of renewable energy financing. In most cases, the groups are hoping to either reap financial rewards from a project by serving as partners, or may do so because of philanthropic reasons. For example, some privately-funded environmental groups may feel renewable energy grants provide a chance to move away from traditional sources of energy, and see sponsoring new projects as a way of promoting a better stewardship of the Earth.

For similar reasons, governments may also offer renewable energy financing through grant programs. These grants are typically awarded through a competitive process, and are subject to certain conditions. The government, in awarding a grant, usually expects a project within a certain timeframe, and expects the project to be completed within the borders of that particular country. If the project is successful in discovering new methods or types of renewable energy, sharing that knowledge with other groups may also be required.

No matter what method of renewable energy financing is chosen, there are likely to be both conditions and tax implications to consider. Venture capitalists, for example, may demand a higher interest rate, or a significant ownership stake in the company. As with any type of income, money received may be subject to some type of income tax. In some cases, income and other taxes may be neutralized by tax incentive programs aimed at promoting renewable energy development.

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    • A wind farm that's used to make renewable energy.
      A wind farm that's used to make renewable energy.
    • A closeup of a solar panel.
      By: ryanking999
      A closeup of a solar panel.