| ID | 191212 |
| Title Proper | bigger bang for the buck |
| Other Title Information | The impact of risk reduction on renewable energy support payments in Europe |
| Language | ENG |
| Author | Đukan, Mak |
| Summary / Abstract (Note) | Decarbonizing Europe by 2050 requires significant capital investments in renewable energy (RE). The weighted average costs of capital (WACC) greatly impact RE production costs and influence the government support payments needed for the financial viability of RE projects. Reducing the risks for RE investors can decrease WACC and ensure that the EU meets its climate targets at the least cost. We investigate the potential for lowering support payments to RE projects by de-risking financing conditions through measures including revenue stabilization and low-risk auction designs for solar PV and onshore wind across 21 countries in Europe. We find that de-risking debt is almost twice as effective as de-risking equity. On average, support payments can be reduced by 3.3 EUR/MWh and 1.9 EUR/MWh, respectively, and in some cases, fall to zero. The effects differ across countries, higher-risk countries like Greece would experience more significant benefits from de-risking than lower-risk countries like Denmark and Germany, where support costs depend more on investment variables such as capacity factors. Overall, we show that WACC depends largely on country risk. Nonetheless, de-risking policies like revenue stabilization can improve the investment climate for RE, reduce the need for government support, and contribute to achieving decarbonization targets.
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| `In' analytical Note | Energy Policy Vol. 173; Feb 2023: p.113395 |
| Journal Source | Energy Policy 2023-02 173 |
| Key Words | Project Financing ; Cost of Capital ; Renewable Energy Auctions ; Remuneration schemes ; Onshore windSolar PV |