Post on 11-Aug-2015
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B a r b a r a B r e i t s c h o p f ( F r a u n h o f e r I S I ) ,R o b e r t B r ü c k m a n n ( e c l a r e o n ) a n d 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 - C E P S P o l i c y Wo r k s h o p - B r u s s e l s 2 1 . 5 . 2 0 1 5
F inanc ing Renewab les : compar i son o f cos t o f cap i ta l in 28 EU Member S ta tes
Background & methodology of research
Results: comparison of costs of capital
Conclusions
O v e rv ie w
Background & methodology
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:
What is the range between cost of capital in the 28 EU MS for wind onshore projects and why is there such a range?
Which risks to wind onshore projects have which impact on RES investments?
How do changes in policy design affect costs of capital?
W o rk p a c k a g e : E n h a n c in g RE S in v e s tme n t
Our methodology for comparing costs of capita l and r isks
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
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
B e f o re w e s ta r t : s o me c a v e a ts
Comparison of costs of capital
W ACC e s t ima t io n s o n s h o re w in d – a p p ro x ima t io n b a s e d o n in te rv ie w s
I mp a c t o f c o s ts o f c a p i ta l o n RE S c o s ts in a s y s te m d y n a m ic a p p ro a c h
-
Little supportneeded
Low risk of systemchange
Low deployment
costs +
Much supportneeded
High deployment
costs
High risk of systemchange
Capital costs +
Much supportneeded
High deployment
costs
High risk of systemchange
Cost of capital
Co s t o f E q u i ty ( a p p ro x ima t io n b a s e d o n in te rv ie w s f o r o n s h o re w in d )
Co s t o f De b t ( a p p ro x ima t io n b a s e d o n in te rv ie w s f o r o n s h o re w in d )
De b t/ E q u i ty Ra t io s ( a p p ro x im a t io n b a s e d o n i n te rv ie w s f o r o n s h o re w in d )
Conclusions
Huge variation in costs of capital for wind onshore projects in EU Member States
High cost of capital lead to increasing wind onshore deployment costs
Difference is in particular due to difference in cost of debt and cost/equity ratio
Factors for differing costs of capital are
RES specific risk premium
Country specific risks
Competition between investors
Co n c lu s io n s
W ACC e s t ima t io n s a n d s u p p o r t s c h e me s f o r o n s h o re w in d
What risks are influencing RES investments?
What investment risks are most important?
How can policies mitigate investment risks?
O v e rv ie w
What risks are influencing RES
investments?
0%
2%
4%
6%
8%
10%
12%
Baseline rate Cost of equity RES investment risks
RE S in v e s tme n t r i s k s –H o w r i s k s in f lu e n c e c o s t o f e q u i ty
Ris
ks re
late
d to
RE
S in
vestm
ents
RE S in v e s tme n t r i s k s – Ris k c a te g o r ie s
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
What investment risks are most
important?
Av e ra g e ra n k in g o f r i s k c a te g o r ie s a c ro s s 24 E U M S
Average Ranking of Risks – 24 EU member states
Co mp a r in g r i s k s in N o r th - W e s te rn , E a s te rn a n d S o u th e rn M e m b e r S ta te s
Co mp a r in g r i s k s in M e mb e r S ta te s b y s ta tu s o f w in d p o w e r d e p lo y m e n t
How can policies mitigate
investment risks?
RE S in v e s tme n t r i s k s – h o w c a n p o l i c y mi t ig a te th e s e r i s k s ?
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
Huge variation in capital costs for RES projects in different EU Member States
Significant differences between regions and market development
Across all EU-MS Policy design risks perceived as most pressing;
Not only choice of support scheme essential for reduction of policy risks –specific design of support scheme also very important
Not all risk categories can be mitigated by policy alone, as other factors and stakeholders are also exerting influencing;
Co n c lu s io n s
http://www.diacore.eu/
More information: Contact Details:Coordinator WP 3:
Lucie Tesnière & Paul Noothout
Ecofys
E-mail: p.noothout@ecofys.com
Robert Brückmann & Filip Jirouš
eclareon
E-mail: rb@eclareon.com
Barbara Breitschopf & Mario Ragwitz
Fraunhofer ISI
E-mail: barbara.breitschopf@isi.fraunhofer.de