P a u l N o o t h o u t , E c o f y s

D i a C o r e - N V D E R e g i o n a l Wo r k s h o p

U t r e c h t 0 4 . 0 3 . 2 0 1 6

The impact o f r i sks in renewab le energy inves tments

Background

Approach

Results:

Investment risks

Cost of capital

Role of policies

Conclusions

Out l ine Enhancing RES investments

The road to achieving 2020 targets:

However…investors seem to be reluctant to invest in RES because:

They are not familiar with RES;

Risks are perceived as (too) high;

It is too expensive;

All of the above;

Etc.

Background Renewable energy investments

€70,000,000,000

Approach Renewable energy investment r isks

Planning Construction Operation

Baseline rate (country risks)

Public acceptance risks

Administrative risks

Financing risks

Technical & management risks

Grid access risks

Policy design risks

Market & regulatory risks

Sudden policy change risks

Finance

Policies

Risk

Background Inf luence of cost of capita l on LCOE

0

10

20

30

40

50

60

70

80

90

100

Technology costs Taxes Finance cost Total

Breakdown of levelised cost of onshore wind (investor perspective, non-recourse finance)

CAPEX OPEX Tax Interest Risk premium equity

Discount rate of 15% 100

€/MWh

Background Inf luence of cost of capita l on LCOE

0

10

20

30

40

50

60

70

80

90

100

Technology costs Taxes Finance cost Total

Breakdown of levelised cost of onshore wind (investor perspective, non-recourse finance)

CAPEX OPEX Tax Interest Risk premium equity

Discount rate of 7.5% 89

€/MWh

Main objectives:

Examine the role of risk and its influence on investments in the RES sector;

Compare the cost of capital and show why it matters;

Provide solutions in order to enhance investments in the RES sector;

Scope of research:

Focus on onshore wind;

Which risks to wind onshore projects have which impact on RES investments?

What is the range between cost of capital in the 28 EU MS for wind onshore projects and what is causing this range?

How do changes in policy design affect costs of capital?

How can policies support to mitigate risks?

Background DiaCore: Enhancing RES investment

Approach Theoret ical model and interviews

Model

• Estimation of costs of capital & ranking of wind onshore-investments risks

• Comprehensive literature study

• Application of RE-frame barriers database (more than 900 listed barriers)

• Draft of 28 EU MS country profiles

Evaluation

• Interviews with financial experts (more than 80 interviews in 26 MS)

• Evaluation of underlying assumptions of model & estimated parameters

• Adaptation of model based on input from interviews

Results

• Aggregation of EU-wide data

• Presentation of results and feedback from more than 40 national experts

• Preparation of deliverables: Country profiles, policy toolbox & final report

Resu l t s Ranking investments r isk across EU

Resu l t s Comparing r isks across regions

There are several methods for wind project financing: corporate financing or project financing

Ongoing changing (often falling) interest rates

Constant changes of RES market conditions

Lack of current, significant projects in some EU markets

Trade secrets

Resu l t s Financia l parameters: some caveats

Resu l t s Cost of Equity for onshore wind

Resu l t s Cost of Debt for onshore wind

Resu l t s Debt/ Equity Rat ios for onshore wind

Resu l t s WACC est imations onshore wind

Resu l t s WACC est imations onshore wind

Q: What would be the effect on the cost for onshore wind if all EU Member States had a WACC as low as Germany?

A: Member States could reduce cost for onshore wind by more than 15%

Resu l t s Pol ic ies to mit igate RES investment r isks

Planning Construction Operation

Baseline rate (country risks)

Public acceptance risks

Administrative risks

Financing risks

Technical & management risks

Grid access risks

Policy design risks

Market & regulatory risks

Sudden policy change risks

Triple ‘A’ policies

Across all Member States, policy design risks perceived as most pressing;

Large variation in costs of capital for wind onshore projects between Member States;

Difference is in particular due to difference in cost of debt and cost/equity ratio;

If all countries would have the same renewable energy policy risk profile as the best in class, EU Member States could reduce the policy costs for wind onshore by more than 15%;

RE policies should result in a dynamic, responsive ‘lock-in’ into renewable energy, providing certainty for investors, drive cost reductions through innovations, learning, and economies of scale, and through lower cost of capital.

Conc lus ions

All results and the deliverables of all DiaCore work packages can be found at our website: http://www.diacore.eu

Wrap-up Al l del iverables are avai lable onl ine

Thank you