Europe’s policy and finance environment has enabled some of the fastest deployments of renewable assets globally. In 2016, it became the first region in the world to surpass 100GW of solar PV capacity, with 140GW of wind power installed.

But policy and finance issues are now arguably at least as important as technology, with policy now the key determining factor in ensuring continued growth in renewables at least cost to consumers. Investment in the energy system has traditionally come mainly through large utilities. But policymakers are not in the same position as they were five years ago when deployment levels were lower, the costs of technologies such as solar were much higher and policy decisions had very different outcomes. Even the costs of offshore wind are falling as indicated by DONG’s recent winning bids for the Borssele 1 and 2 projects at €72.2/MWh.

In future, investment will need to come from a variety of sources and not just from large utilities which has traditionally been the case. This means that policy will need to change dramatically to adapt to this new, broader range of potential financing options.

Our latest report which is published today, European Renewable Energy Policy and Investment 2016 finds that the cost of financing will be driven as much by the types of investors as by how investors evaluate project risks, returns and policy. In other words, how investment is divided among utilities, institutional investors, households or companies is one of the most important factors determining the average cost of renewable energy to the system.

In Germany and Spain, for example, very different policy incentives were concentrated on very specific investor categories, ie, small end users in Germany and the utility sector in Spain. Both approaches achieved high levels of deployment in a relatively short time but were not necessarily cost-effective.

In future, investment will need to come from a variety of sources which means that policy will need to change dramatically to adapt to this new, broader range of potential financing options.

Crucially, our analysis suggests that:

1. The cost of financing will be driven as much by the types of investors as by how investors evaluate project risks, returns and policy.
2. Policy and industry design determines how renewable energy investments fit with the objectives and constraints of different types of investors.
3. Business models and investor capabilities will develop over time in response to policy signals.

The report will help policymakers to consider how to:

1. Balance cost effectiveness and deployment goals.
2. Balance short-term cost-efficiency versus longer term development.
3. Develop technology mixes and options.
4. Shape the industry to achieve industrial objectives and/or public support.

Read more in the blog here.