Determinants of Policy Risks of Renewable Energy Investments

Purpose – Policy or regulatory risks represent one of the major barriers for renewable energy investments,
especially against the background of several retrospective reductions of support schemes in Europe. This
paper aims to contribute to the literature by offering a categorization of major risk drivers and determinants
of policy risk associated with renewable energy projects in developed countries.
Design/methodology/approach – Based on a narrative (traditional) review of the academic literature
and supported by industry studies regarding cases of support scheme cuts in Europe (from the end of 2010
until the end of 2013), the paper derives determinants of policy risks of renewable energy investments.
Findings – As a main result, the paper offers a concise categorization of major risk drivers of policy and
regulatory risks associated with renewable energy investments in developed countries along with potential
indicators.
Practical implications – The derived categorization of major risk drivers and the set of indicators are of
high relevance for risk management and risk assessment of renewable energy investments, where
understanding the underlying risk drivers is vital. The findings can thus be applied when establishing a sound
risk management for renewable energy investments.
Originality/value – The paper helps (potential) investors, policymakers and regulators to assess policy
risks associated with renewable energy investments.
Keywords Renewable energies, Empirical analysis of support scheme cuts,
Narrative (traditional) analysis of the literature, Policy risk, Regulatory risk
Paper type General review