Copenhagen Economics has helped the Danish wind turbine manufacturer Vestas assessing how investors perceive risks (especially policy risks) associated with support mechanisms to wind energy. CE has in this respect interviewed several large investors including financial investors, institutional investors, and utility companies. This theme has gained particular relevance in light of significant adjustments to support mechanisms in some European countries in response to the economic crisis.
 
We come to the following conclusions:

• The involvement of financial and institutional investors are required to meet EU renewable energy deployment targets. Increasing policy credibility will reduce investment risks and consequently reduce the cost of energy and the cost of reaching EU targets.
• There is an important distinction to be made between pre-deployment and post-deployment risk. Financial and institutional investors are primarily exposed to post-deployment risks of specific installations and can benefit from certain and guaranteed cash flow arrangements to specific investments. Utility companies and supply-chain producers are primarily exposed to pre-deployment risk and can benefit from credible overall climate policies which ensures continued RE deployment.
• The interviewees also noted the followingFinancial investors showed a preference for simple support mechanisms such as fixed feed in tariffs

–   Utilities has a more balanced approach and noted that market based mechanisms (such as tradable green certificates) may be a more credible mechanism because it is more difficult to change.
–   Exposure to power market risks is a large concern for financial investors than for utilities, as utilities can better hedge against power market fluctuations.

• Competition between mature technologies should be nurtured in order to achieve short term cost efficient deployment, while more targeted support should be granted for less mature technologies in order to drive down the future mitigation cost.

To read the report, click here
 
For more information, contact partner Sigurd Næss-Schmidt