Could New Investment Structures in the German Renewable Energy Market Make the Market More Cost-Competitive?

, June 2015

 

Germany is in the midst of a major energy transition, one that could serve as a model for the rest of the world. At the core of the challenge is the need to continue to grow renewable energy (and drastically reduce dependence on coal) while containing the cost of renewable energy to government and ratepayers.

German policymakers are looking to control costs by replacing the feed-in tariffs that have driven renewable energy deployment and cost reduction with new competitive mechanisms. However, if these policy changes are made without considering their impact on how projects are financed, they could inadvertently increase costs. Any changes to policy should be made with a comprehensive understanding of the current and potential investors in renewable energy and the impact that different policy mechanisms and financing structures could have on their costs and ability to invest.

CPI, with the support of the European Climate Foundation, is examining this important aspect of the transition to inform policy and financing activities that could allow Germany to advance its energy transition at lower cost. In this project, we will:

  1. Size the investment potential for different types of renewable energy across potential German investor groups in the sector – utilities, developers, financial investors, large energy users, small energy users, and municipal and other governments.
  2. Assess the market opportunity for new financing instruments, including new financing structures such as YieldCos, crowdsourcing, and municipal funding, which we identified as potential opportunities in previous work.
  3. Identify policy options that seem to have the most favorable impact or provide the biggest barriers to investment. Starting with opinions expressed by investor groups and their analysts and advisors, as well as a review of investment cases and our financial modelling, we will analyze the impact of policy changes to financing costs for different market segments.

 
Alongside this project, CPI is also working with the Stockholm Environment Institute (SEI) on a New Climate Economy project, to identify and analyze the barriers faced by investor groups across five European countries/regions (Germany, UK, Nordic countries, Iberia, Italy).

The lessons from these projects will be relevant for Europe and beyond. With Europe’s new, more ambitious renewable energy and carbon emissions reduction targets for 2030, changes to European policies and regulations will be necessary, as well as policy and regulation in EU member states.

Ultimately, the transition to a low-carbon electricity system will require wholesale changes to policy, technology, market design, consumer behavior, industry structure, and finance. Addressing the finance portion of the equation is critical to develop a true picture of the priorities for policy development in Germany and beyond.

 

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