Often one the most debilitating obstacles which prevents DE projects from going ahead is the high up-front costs associated with most DE technologies. Traditional financing that would ususally be employed for other power sector projects is often either inappropriate or unavailable. Banks are often hesitant to finance DE projects for two main reasons:
1. Banks lack experience in financing DE projects and thus view DE projects as having increased risk compared to other power sector projects.
2. Transaction costs are higher for DE projects so banks are naturally drawn to other power sector investments where fixed costs are lower relative to total power capacity being financed.
Part of the reasons DE projects struggle so much to recieve financing could be that they are still often approached using the ‘project’ financing model typically used for finaincing large hydro power dams, large scale transmission lines and steam coal plants. An alternative which deserves increased attention is a financing model which borrows from a ‘white goods’ financing. Using this model DE project developers would approach banks to seek financing using a model that more closely resembles a model often used to finance household appliances or cars: where small monthly payments include principle and interest with minimal paper work required.