Why renewable energy in Georgia needs capital markets, not just subsidies

Developing capital market instruments is essential to unlocking scalable and sustainable financing for Georgia’s renewable energy sector. While the country benefits from strong fundamentals—abundant hydropower resources, growing solar and wind potential, and a clear political commitment to energy independence—renewable energy projects continue to face constraints in financing depth, scalability, and long-term investment sustainability. Significant untapped potential remains, but structural gaps in the financial system continue to limit its realization.

The core challenge is not insufficient state support, but the absence of a risk-absorbing layer within the financial system. Georgia’s renewable energy financing model remains heavily reliant on tariff-based support schemes, including Contracts for Difference (CfDs) introduced in 2022, while capital market instruments remain largely undeveloped. As a result, risks that could be distributed across financial markets are instead concentrated on individual project balance sheets, raising financing costs and reducing efficiency.

Subsidies solve prices, not risk

Georgia’s CfD mechanism and legacy power purchase agreements (PPAs) have improved revenue predictability, particularly for hydropower and utility-scale solar projects. These instruments, however, primarily address price risk. They do little to mitigate non-price risks such as grid congestion, curtailment exposure, regulatory change, foreign exchange volatility, and delays in grid connection—each of which has material financial implications.

In practice, these risks undermine cash-flow predictability and increase the cost of capital. Several renewable energy projects approved under existing support schemes continue to face uncertainty around actual grid availability, particularly during peak hydrological seasons. Curtailment risk—forced reductions in power generation due to grid constraints—remains largely uncompensated, directly affecting debt-service coverage ratios. This has been observed in small and medium hydropower plants in eastern Georgia, where unexpected curtailments during high-water periods led to temporary revenue losses, increasing financial pressure on developers and limiting reinvestment capacity.

Why more subsidies will not fix the problem

Expanding subsidies may increase the project pipeline, but it will not resolve underlying structural weaknesses in financing. Overreliance on state support risks crowding out private capital and delaying the development of market-based solutions. Subsidies are most effective as transitional tools to de-risk early-stage investments; without parallel development of capital market instruments, they cannot deliver sustainable, long-term financing or broaden investor participation.

The missing layer: capital market instruments

In mature energy markets, capital markets complement subsidies by absorbing and redistributing long-term risk. Georgia currently lacks this layer. There is no established green bond market linked to renewable assets, no dedicated infrastructure funds focused on energy, and no dividend-paying renewable energy vehicles or securitization structures that could provide liquidity for investors.

As a result, financing remains heavily dependent on bank lending and international financial institutions. While both have supported individual projects, this financing is typically project-specific and balance-sheet intensive. Capital markets—which could pool assets, diversify risk, and attract institutional investors—remain largely absent. This constrains investment appetite, particularly among long-term investors seeking stable, predictable returns.

Why banks cannot carry the burden alone

Banks are not designed to absorb systemic or regulatory risk. In Georgia, lenders price uncertainty through higher margins, shorter tenors, and conservative debt sizing. In renewable energy financings, loan maturities often fall short of asset lifetimes, increasing the refinancing risk. Even projects with strong projected cash flows therefore struggle to secure affordable long-term debt, limiting sectoral scale-up.

Capital markets, by contrast, allow institutional investors to accept lower returns when risks are diversified, transparent, and tradable. Georgia’s current regulatory framework does not yet enable this type of participation. Properly structured instruments—such as green bonds, renewable energy funds, or securitized project portfolios—could offer predictable cash flows while distributing risk across a broader investor base, improving bankability and scalability.

The equity gap: Georgia’s weakest link

Renewable energy projects in Georgia are often financeable but not fully investable. Exit options are limited, secondary transactions are rare, and valuation benchmarks remain unclear. Regulatory approval requirements for changes in control add further friction. Without capital-market exits—such as listed infrastructure vehicles or portfolio sales—equity investors demand higher returns or stay on the sidelines altogether. This slows capital inflows and disproportionately affects medium-scale solar and wind projects.

Georgia’s renewable energy sector also remains largely project-centric, with each asset financed individually. This increases transaction costs and constrains scale. Capital markets enable portfolio financing, where assets are pooled, risks diversified, and capital mobilized more efficiently. In Europe and North America, such approaches have reduced costs, attracted institutional investors, and accelerated renewable energy deployment. In Georgia, combining small hydropower plants with emerging solar projects into diversified portfolios could create investable products suited to long-term investors.

A capital markets agenda for Georgia

Policy efforts should focus on enabling green and infrastructure bonds, pooled investment vehicles, and clear rules for asset transfers and securitization. These reforms would complement—rather than replace—existing support schemes. Introducing standardized legal frameworks for project transfers, portfolio sales, and investor protections would further enhance confidence among domestic and foreign investors. Investor education and market-building initiatives could also play an important role in accelerating adoption.

Georgia’s renewable energy challenge is not one of ambition, but of financial architecture. Without robust capital market instruments to absorb and distribute risk, financing will remain costly, constrained, and dependent on subsidies. Developing mechanisms such as green bonds, pooled investment vehicles, and securitization can transform the sector into a scalable and investable market. Capital markets are not merely a financing tool—they are central to unlocking long-term growth, resilience, and security in Georgia’s renewable energy sector.

Levan Kokaia is a strategic advisor in renewable energy and a lawyer for the Georgian Renewable Energy Development Association (GREDA).