Creating the Right Framework for Investment: Targets and Renewable Energy

By Dr James Watson, CEO, European Photovoltaic Industry Association (EPIA)
Autumn 2014

Providing financing for renewable energy is one of the key challenges that faces society in Europe today. Despite huge amounts of public support for renewable energies1, governments are struggling to find the capital that decarbonising the economy requires. It is therefore clear that private funding will also play a significant role in the development of renewable energies in Europe. Only very recently it was reported that so called green funds would be worth up to $50 Billion USD in 2014 already, and that this is a growing phenomenon2. The challenge is for governments to ensure that this finance source continues to grow to deliver the energy transformation that is needed to create a low carbon economy.

This is where the importance of policy can be seen. As investors look for secure and stable options to invest in, the right policy signals need to be given to direct smart investments.

The debate in Europe around the "at least 27%" renewable energy target - included in the set of proposals for a Climate and Energy framework for 2030 put forward by the European Commission in January - highlights the importance of creating the right investment climate for private funds. Such targets set the tone for the long term investment climate and provide an indication of likely growth and return.

The question is whether the proposed renewable energy target is a sufficient incentive to drive private capital into the renewables sector. Examining the target in more detail you find that the 27% renewables target is barely more than the 24.4% European Commission's predicted business-as-usual scenario share. Moreover, an EU-wide target without binding national targets would not provide the stability and predictability any investor would need. Therefore, to ensure that private capital can be driven towards renewable energies stronger political support is needed. European politicians and policymakers need to firmly support more ambitious targets for renewables.

There is, however, room for optimism. In a speech to the European Parliament in July, the Commission President elect, Mr. Juncker, came forward in support of a 30% energy efficiency target for 2030, which is now backed by a Commission Communication. Such an energy efficiency target had seemed the least likely of all the targets to gain political support earlier this year. However, with a new Commission President comes new room for manoeuvre and new ideas. Further optimism can be harnessed by looking to the European Parliament who earlier in 2014 called for a 30% binding renewables target in 2030. Nevertheless to effectively give investors the right signal on renewable energy Mr. Juncker needs to bring forward an ambitious plan to incentivise investments in renewable energy. This investment signal should consist of binding national targets for renewable energies and an overall framework at the European level. This will speed up the process of driving private funds into the renewable energy sector and truly create the low carbon future the majority of Europeans want.

As European Heads of State will gather again in October to discuss the Commission proposals for a 2030 Climate and Energy framework, President Juncker should seize the opportunity to upgrade the European Commission's position on renewable energy. The necessary renewal of the European power fleet will require large capitalintensive investments. While a strong CO2 price can help close the most polluting power plants, alone it will not be enough to fully negate investment risks in renewables now.

Europe has a leading position in developing renewable energies, but to maintain this position it needs an ambitious, stable and predictable regulatory framework. That will enable renewables and solar photovoltaics to thrive in Europe, generating growth, jobs and a much-needed economic boost for the continent. The right signals for investors can go a long way to achieving this vision.

1. According to the Special Eurobarometer 364 from May 2011, people are "more favourable to renewable energy than other energy sources, particularly solar (94%), wind (89%) and hydroelectric (85%)" energy.

2. The Economist, "Green bonds: Green grow the markets, O", 5 July 2014.