Investor-specific Cost of Capital and Renewable Energy Investment Decisions

Item Type Book Section
Abstract Introduction - Incumbents versus new investors in the renewable energy sector The diffusion of renewables in Germany and other European countries has fundamentally changed the energy investor landscape. For several decades, investment in power generation infrastructure in Germany was largely dominated by four utility incumbents, often termed the ‘Big Four', which controlled 76% of the conventional generation capacities in 2012. In the emerging renewable energy segment, however, 90% of German wind power capacity and 96% of distributed solar capacity was owned by non-utilities in 2012. Private investors, such as homeowners, farmers and cooperatives, account for 47% of German renewable energy capacity. Moreover, institutional investors, such as pension and investment funds and insurance companies, play a significant role in financing renewables and own 42% of installed capacities. We propose that differences in the cost of capital among Investor groups, common techniques of investment valuation, along with the financial characteristics of renewable and fossil technologies, explain the aforementioned shift in investment behavior. More specifically, we conjecture that electric utilities have traditionally invested in highrisk/high-return power generation projects, implying high costs of capital. Using the same metrics to assess lower-risk/lower-return projects in the field of renewables, such as wind parks or PV projects with guaranteed feed-in tariffs, has led to a systematic underestimation of their attractiveness, resulting in a loss of market share of utilities vis-à-vis other investors with lower cost of capital.
Authors Helms, Thorsten; Salm, Sarah & Wüstenhagen, Rolf
Editors Donovan, Charles W.
Language English
Keywords renewable energy; finance; utilities; investment decision
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date 2015
Publisher Imperial College Press
Place of Publication London
Page Range 77-101
Number of Pages 25
Title of Book Renewable Energy Finance - Powering the Future
ISBN 978-1-78326-776-7
Depositing User Doris Hoevel
Date Deposited 20 Jul 2015 16:44
Last Modified 20 Jul 2022 17:25


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Helms, Thorsten; Salm, Sarah & Wüstenhagen, Rolf: Investor-specific Cost of Capital and Renewable Energy Investment Decisions. In Donovan, Charles W. (ed.): Renewable Energy Finance - Powering the Future. London : Imperial College Press, 2015, S. 77-101.

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