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| Srl | Item |
| 1 |
ID:
191212
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| Summary/Abstract |
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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| 2 |
ID:
180847
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| Summary/Abstract |
The recent rise of auctions to allocate support payments for renewable energy projects creates new uncertainties during project development and causes a decrease in support levels. We investigate the effects of the shift to auctioning on costs of capital (CoC) and financing conditions through semi-structured and focus group interviews with 40 experts in onshore and offshore wind project development and financing in Europe. We find that auctions create a competitive environment that pressures the industry into accepting higher risks and lower returns. Banks have reduced debt margins, while large investors decreased hurdle rates and equity returns, despite additional risks from auctions, such as uncertainty about future award prices, allocation and qualification risks. The risk of being awarded support and incurring sunk costs makes smaller bidders averse to participating in auctions. Competitive bidding may also decrease secured revenues and increase offtaker risks, especially when combined with sliding premiums. Despite increased price risk, the competitive pressure driven by project sponsors, seems to lower financing costs and hurdle rates, thus decreasing CoC for offshore projects. To reduce negative impacts on CoC and financing, policymakers can minimise additional risks, by adopting remuneration schemes that stabilise revenues, and supporting smaller actors through removing participation hurdles.
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