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Financing Energy Innovation: New Roles and Functions of Intermediation in Clean Energy

TitleFinancing Energy Innovation: New Roles and Functions of Intermediation in Clean Energy
Publication TypeWorking Paper
Year of Publication2018
AuthorsIn, SYoung, Monk, AHB
KeywordsClean Energy Investment; Valley of Death; Financial Intermediation; Institutional Investors
Abstract

While consistent and long-term sources of investment capital are needed to flourish the clean energy ecosystem, current financial intermediaries have failed to effectively channel sources of funding to entrepreneurs. This study provides a theoretical framework of new roles and functions of intermediation in fostering the transition to a low-carbon economy. We find that investment opportunities (and risks) are not effectively assigned to the appropriate investors due to the fragmented nature of investor networks and the large information asymmetries among different investor categories and companies. Yet, there are no (or very few) investment vehicles today that take these barriers into consideration. Thus, we develop three functions that are critical to effectively intermediate a broad range of investors in clean energy and facilitate an intelligent information flow over the entire clean energy development cycle: (1) an anchor that offers nominal amounts of priming capital that can, in some cases, take a first-loss position; (2) a balanced barbell that enables to raise capital, at-scale, from various funding sources and provides equity and debt capital to companies maturing commercially; and (3) an infomediary that provides reliable and objective information about clean energy companies or projects in a highly transparent and trustworthy manner. In addition, we introduce the new institutions in Silicon Valley as reference points as they are designed to perform functions partially similar to our proposed ones. This paper concludes with a proposal on a new coordinating platform design, a multistrategy vehicle that simultaneously coordinates three core intermediary functions.

URLhttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=3248032