In 2013, the United Nations Development Programme (UNDP) outlined a framework for “Derisking Renewable Energy Investments” (DREI). The 156-page report presented a series of government-led interventions aimed at neutralizing the financial risks that often deter private investors from backing renewable projects. The concept? By “reducing, transferring, or compensating for risk,” policymakers could funnel private capital into climate solutions at scale.
For years, this idea was buried in policy circles and development finance reports, but little by little with growing popularity, it suddenly exploded into the mainstream climate conversation today. Despite its origins more than a decade ago, derisking was the dominant theme of this year’s Climate Week NYC. Biden’s Inflation Reduction Act, signed in 2022 was one such piece of legislation that served as a derisking vehicle in the past few years, fueling a sharp acceleration in clean energy investment. According to recent data from the U.S. Department of Energy, clean energy investment has surged to record levels in 2024, with projects benefiting from expanded tax incentives and loan guarantees. The Department of Energy estimates that the IRA’s clean energy provisions could drive over $1.2 trillion in private investment by 2030, a clear indication of the scale at which derisking is now operating in the U.S.
Derisking, it turns out, is not just about pricing in climate risks—it’s about restructuring the investment landscape itself. In practice, derisking policies take shape through federal tax credits, loan guarantees, offtake agreements, and relaxed regulatory hurdles. These mechanisms, designed to entice private capital, function as a form of state-backed economic engineering.
But here’s the tension: critics argue that these strategies privatize profits while socializing risks. Political economist Fabio Bulfone and his colleagues, Timur Ergen and Manolis Kalaitzake, contend that by shielding private investors from downside risks, governments across both developed and emerging economies are using public funds to absorb financial volatility in clean energy markets. (Source) The result? A seismic shift in how capital flows into the energy transition—one that raises critical questions about accountability, efficiency, and who ultimately benefits.
Yet, it’s not just governments spearheading derisking strategies… future-minded startups are increasingly taking matters into their own hands. Many emerging clean energy firms are securing large offtake agreements with established corporations to stabilize revenue streams (or at least appear more desirable to investors) and mitigate investment risks. These agreements, often structured as long-term power purchase agreements or supply contracts, provide startups with predictable cash flow, making them more attractive to investors. There no shortage of offtake partners; tech companies with large datacenters like Microsoft and Google are aggressively pursuing deals in clean energy procurement, airlines with SAF, and so on…
As the financial landscape for clean energy evolves, the practice of derisking—whether through government incentives or strategic corporate partnerships—will continue to define the pace and shape of the transition. The challenge ahead lies in ensuring that these mechanisms drive meaningful climate impact rather than merely insulating investors from financial exposure. If done right, derisking can be the bridge between policy ambition and real-world decarbonization. But if left unchecked, it risks becoming yet another tool that entrenches corporate advantage without addressing the systemic urgency of the climate crisis.
