Investment - Bluefin Energy

The dilemma is particularly difficult for small states, where required investments are large as a share of GDP, large investments in geothermal power and natural gas technologies, estimated at about 6 percent of GDP on average, could significantly lower energy costs for. The public and private sector are improving competitiveness and making investment more attractive as well as reducing pressure on external accounts, and increasing GDP over the long-run.

Cost savings from shifting to some alternative energy technologies would persist even in a protracted low oil price environment, particularly for investments in natural gas facilities. While the pay-off is large, it would be captured only over a long period. In the meantime, high public debt and limited fiscal space, prevalent across the region, raise questions about whether these investments could be financed without jeopardizing debt sustainability. Private sector financing remains the first-best solution to this dilemma, but difficulties in securing private partners because of a small market, size and limited economies of scale in small states often mean an investment cannot take place without substantial public sector involvement.

And even in cases where private financing is available, public-private partnerships (PPPs) often require an equity stake by the public sector, ancillary investments in related infrastructure, and, in many cases, government guarantees for the project, all with implications for public debt sustainability.

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