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Sarah Salm
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Salm
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PublicationType: journal articleJournal: Energy PolicyVolume: 163
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PublicationDream team or strange bedfellows? Complementarities and differences between incumbent energy companies and institutional investors in Swiss hydropowerInstitutional investors can potentially be a significant source of capital for financing the energy transition. This is even more important as incumbent energy companies in many European countries struggle to adjust their business model to changing market conditions. This article reports on a choice experiment with pension fund and energy managers conducting 1,129 experimental investment choices in Swiss hydropower. We find that complementarities exist with regard to financing different stages of project development – pension funds are averse to construction and development risk but comfortable in deploying capital to existing projects, while incumbents are willing to invest in all project stages. The two groups show surprising similarities in their aversion to fluctuating electricity prices. When fully exposed to revenue risk, energy firms and pension funds demand a risk premium of 5.98% and 7.94% respectively. For policy makers, this suggests that shielding investors from revenue risk, as has been done with feed-in tariffs for other renewables, might be an effective way of lowering the financing cost of hydropower. When it comes to their preferred co-investors, the two groups express mutual distaste for each other: energy firms would rather invest in consortia with other incumbents, and the same goes for institutional investors.Type: journal articleJournal: Energy PolicyIssue: 121
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PublicationWhat are retail investors' risk-return preferences towards renewable energy projects? A choice experiment in GermanyCitizens own nearly half the renewable energy generation capacity in Germany and have been important drivers of the country's energy transition. In contrast to citizens' important role in financing renewable energies, the energy policy and economics literature has traditionally focused on other investors, such as incumbent energy firms. To close this gap, this paper reports on a large-scale survey of 1,990 German retail investors. Conducting a choice experiment with the subset of 1,041 respondents who expressed an interest in investing in community renewable energy projects, we present a unique dataset allowing for new insights in risk-return expectations of retail investors. We find that apart from return on investment, respondents are particularly sensitive to the minimum holding period and the issuer of community renewable energy investment offerings. A minimum holding period of 10 years implies a risk premium of 2.76% points. A subsequent segmentation analysis shows that two groups of potential community renewable energy investors with different risk-return expectations can be identified: “local patriots” and “yield investors”. In contrast to professional investors, a majority of retail investors use simple decision rules such as calculating payback time or relying on their gut feeling when making investments.Type: journal articleJournal: Energy PolicyVolume: 97
Scopus© Citations 101 -
PublicationType: conference paperVolume: Kurzfassungsband IEWT 2015
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PublicationType: conference paper
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PublicationInvestor-specific cost of capital as explanatory factor for heterogeneity in energy investment decisions( 2014-10-30)Helms, ThorstenType: conference paper
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PublicationInvestor-specific Cost of Capital and Renewable Energy Investment Decisions(Imperial College Press, 2015)
;Helms, ThorstenDonovan, Charles W.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.Type: book section -
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PublicationType: working paperJournal: Energy PolicyVolume: 121