8 T. WAKIYAMA ET AL.
exchange flow risks that are associated with domestic energy imports, and
decrease CO 2 emissions by replacing conventional fossil fuel energy sources
(IPCC 2007 , 2012 ; Mitchell et al. 2006 ).
Renewable energy is often derived as independent energy sources that
differ from conventional centralized energy systems (Carrasco et al. 2006 ).
For instance, conventional electricity supplied through thermal and nuclear
energy generation in Japan has been dominated by regional electricity com-
panies that own large-scale energy facilities (FEPC 2014 ). However, as
renewable energy sources are typically sited at local production facilities,
increasing attention has been dedicated to local contexts with respect to the
construction, management, and operation of such energy supply systems
at the city or prefecture level (Hiremath et al. 2008 ). The OECD ( 2012 )
notes that renewable energy production involves new sources of revenue
that support key public services and infrastructure and local employment
and business opportunities. Renewable energy facilities could be promoted
as locally and individually owned facilities. Cities and local governments
thus can play a key role in promoting renewable energy production.
The benefits associated with renewable energy production are increas-
ingly recognized and global investments in renewable energy have increased
over the past decade, reaching $270.2 billion in 2014 (FS UNEP 2015 ).
However, to meet the 2-degree target, an average of $1.6 trillion in green
investments is required every year through 2040 (WB 2012 ; IEA 2010 ).
At the same time, there are economic, social, political, and geological risks
and uncertainties associated with renewable energy investments that are not
associated with conventional energy sources (Beck and Martinot 2004 ; FS
UNEP 2015 ; MOEJ 2014b). Therefore, to promote renewable energy sup-
plies, electricity market reforms, innovative financing schemes, and additional
low-carbon policies are important factors to mitigate low-carbon investment
risks and make renewable energy investments more attractive to investors
(OECD 2011 ). However, before proceeding with any such reforms, three
questions must be addressed: What financing methods are available? What
are the risks and returns that can be expected from renewable energy invest-
ments, and what policy interventions may effectively reduce such risks while
increasing returns. Under current market structures, power plant investment
decisions are made by private investors based on power generation costs
(Fagiania et al. 2013 ; The Economist 2011 ; CPI 2011 ). To further increase
installed renewable capacities, establishing supportive financial policies
will help strengthen market competitiveness levels until such technologies
become cheaper in the market and public awareness regarding sustainable
energy supply and energy security issues is enhanced.