Is asset securitization an effective means of financing China’s renewable energy enterprises? A systematic overview

Abstract

Under financing difficulties, asset securitization has the advantages of activating stock assets, enhancing credit, and isolating risk and is therefore a potential financing mode for renewable energy enterprises. This paper provides a systematical overview of asset securitization financing as it applies to renewable energy enterprises. The feasibility of such financing is first analyzed from the perspectives of the typical financing difficulties experienced by renewable energy enterprises, the underlying assets available for securitization, the legal and policy basis for such financing, as well as the history and current state of the practice in China and internationally. On this basis, three asset securitization mechanisms are proposed. Two case studies are conducted, which use a financing cost measurement model to show that asset securitization offers no cost advantage and that its main advantage lies in its high accessibility. Currently, asset securitization financing for China’s renewable energy enterprises faces many difficulties, including the inadequacy of government subsidies as underlying assets, the high risks and cost of asset securitization financing, the challenges of patent securitization, and imperfections of institutions and mechanisms. It is suggested for Chinese government that to ensure adequate revenue for renewable energy projects and reduce risks and cost, promote patent securitization and improve the basic institutions and mechanisms of securitization.

Keywords

• Renewable energy enterprises
• Financing mode
• Capital cost
• Asset securitization
• Available underlying assets