Environmental finance is about creating the greatest environmental benefit for the largest number of people at the lowest possible cost. That is the first and most important principle listed in Finance Policy for Renewable Energy and a Sustainable Environment. Focusing on what the author considers to be the 23 principles of environmental finance, this text examines the key financial principles necessary to build strategies and adopt policies to deal effectively with environmental challenges. The text encourages making financial decisions based on science, not politics, and considers what it takes to design and execute environmental finance programs in the most cost-effective way possible. Providing a historical overview of how we got to where we are now, and outlining the 23 principles needed to establish a stronger foundation for the future, this text presents the basic financial tools required to understand the concepts presented. It discusses the proper roles of grants, loans and guaranties, the concept and proper use of affordability, understanding leverage, and generating revenue streams for environmental programs.It also examines subsidies, financial risk reduction strategies, and the challenges posed by alternative energy as well as the next generation of environmental programs. As it relates to how environmental projects and improvements are achieved, Finance Policy for Renewable Energy and a Sustainable Environment outlines the greatest benefits at the lowest possible cost to the public. This text is an ideal resource for upper-level undergraduate students in environmental engineering and business courses, as well as practicing environmental engineers.
Series Preface xi
About the Series Editor xv
Preface xvii
Acknowledgments xxi
About the Author xxiii
Introduction xxv
1 Paying for the Fix 1 (16)
What Is Environmental Finance? 2 (1)
The Second Wave 3 (14)
2 The 23 Principles of Environmental Finance 17 (6)
Two Core Principles 18 (1)
Policy Principles 18 (1)
Management Principles 19 (1)
Fundraising Principles 19 (1)
Financial Principles 20 (3)
3 Two Core Principles of Environmental Finance 23 (8)
4 Policy Principles of Environmental Finance 31 (6)
5 Management Principles of Environmental Finance 37 (6)
6 Revenue Raising Principles for Environmental 43 (6)
Finance
7 Sources of Revenue for Environmental Finance 49 (12)
Programs
8 Financial Principles of Environmental Finance 61 (8)
9 Financial Mechanics 69 (12)
Types of Debt 70 (6)
Irregular Payment Method 70 (1)
Balloon Payment Loans 70 (2)
Level Payment Method 72 (3)
Creating an Annual Debt Service Payment 74 (1)
Schedule for the Level Payment Method
Summary of the Level Payment Method 74 (1)
Level Principal Payment Method 75 (6)
Creating an Annual Debt Service Payment 75 (1)
Schedule for the Level Principal Payment
Method
Summary of the Level Principal Payment 76 (1)
Method
Cash Available for Debt Service (CADS) 76 (2)
Coverage 78 (3)
10 Comparing Financing Alternatives 81 (14)
Comparing Loans 81 (14)
Annual Payment Method 81 (1)
Total Payment Method 82 (1)
Time/Value Theory of Money 82 (13)
Method Rules 91 (1)
Points, Fees, and True Interest Cost (TIC) 92 (3)
11 Hidden and Not-So-Hidden Cost Factors 95 (12)
Financing Costs 95 (12)
Commitment Fees or Points 95 (1)
Financial Advisory Fees 96 (1)
Counsel Fees 97 (1)
Servicing Fees 98 (1)
Underwriting/Placement Fees 99 (1)
Credit Enhancement Fees 100 (1)
Rating Agency Fees 101 (1)
Miscellaneous Imposed Costs 101 (1)
Nonfinancial Additional Cost Factors 102 (15)
Delay 102 (1)
Ineligibility 103 (4)
12 Impact of Term on Annual Debt Service Payment 107 (6)
Level Principal Payment Loans 107 (4)
Level Payment Method 111 (2)
13 Grants and Affordability 113 (10)
Grants 113 (4)
Affordability 117 (16)
Community Affordability 118 (1)
Individual Affordability 119 (4)
14 The Role of Equity 123 (10)
15 The Curse of Subsidies 133 (16)
The Need for Subsidies 137 (2)
Delivering the Subsidy 139 (2)
Non-Income Targeting Mechanisms 140 (1)
Affordability Measures 141 (2)
Lifeline Rates for Low-Income Customers 141 (1)
Refunds or Discounts for Low-Income 142 (1)
Customers
Community Social Service Funds 143 (1)
National Funds for Low-Income Water Bill 143 (1)
Assistance
Designing Better Subsidies 143 (2)
Subsidies: Some Real, Some Imagined 145 (4)
Reducing Costs 146 (3)
16 Leverage: The Power of Guaranties 149 (14)
Major Techniques for Financing Projects 150 (8)
Grants 151 (1)
Subsidized Loans 152 (2)
Market-Rate Loans 154 (4)
Municipal Bonds 155 (3)
Loan Guaranties 158 (1)
Rules of the Game 158 (5)
17 Cost/Benefit Analyses 163 (10)
Benefit Matrix 165 (1)
Cost Matrix 166 (1)
Case Study: Republic of Georgia Water Project 167 (6)
18 Credit Enhancement 173 (16)
Tranching 174 (2)
Self-Funded Reserves 176 (2)
Second Loss Reserve 178 (1)
A Role for the International Development Banks 179 (1)
Tax Revenue Intercepts 180 (2)
Externally Funded Guaranties 182 (2)
Legal Guaranties 184 (1)
Financial Guaranty Insurance 185 (4)
19 Tariffs 189 (12)
Characteristics of Good Tariffs 189 (1)
Full Cost Recovery Tariffs 190 (1)
Tariff Design Options 191 (10)
Fixed versus Volumetric Charges 192 (5)
Fixed Charges 192 (1)
Volumetric Charges 192 (1)
Multipart Tariff 193 (1)
Types of Volumetric Charges 194 (1)
Increasing Block Tariff (IBT) 194 (1)
Decreasing Block Tariff (DBT) 195 (1)
Seasonal Pricing 195 (1)
Zonal Pricing 196 (1)
Regulation of Water Tariffs 197 (4)
Types of Regulation 198 (1)
Independent Financial and Management Audit 199 (2)
20 Climate Change and Renewable Energy 201 (10)
The Beginnings 201 (2)
Finance Policy for Climate Change and 203 (8)
Renewable Energy
21 Cap-and-Trade Programs 211 (4)
22 Driving Down Costs 215 (4)
Reduce System Costs 215 (1)
Volumetric Tariffs 215 (1)
Raise Money/Change Behavior 216 (1)
Service Lives 216 (1)
Longest Terms 216 (1)
Lowest Rates 216 (1)
Credit Enhancement 216 (1)
Guaranties 217 (1)
Buy-Downs 217 (1)
Subsidies 217 (1)
Carrots and Sticks 217 (1)
Cost/Benefit 217 (2)
Appendix: Countries with Non-Investment-Grade 219 (2)
Ratings on Their Sovereign Debt
Index 221
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