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Lowering the financing cost of Swiss renewable energy infrastructure: Reducing the policy risk premium and attracting new investor types
Texts for this project
Publications / Results
renewable energy, infrastructure, financing, policy risk premium
With decreasing technology cost, the financing cost of renewable energy projects becomes a key concern for scaling up investment. This project (a) quantifies the policy risk premium required by investors, (b) compares expected to realised risk for Swiss investors at home vs. abroad, and (c) investigates the role of institutional investors in reducing capital cost. Based on a unique dataset, we derive recommendations for investment-grade policies.
Publications / Results
In WP1, we collected proprietary data on duration and cost of permitting procedures for large wind projects, based on 22 in-person interviews with project developers. In addition, we constructed a cantonal database summarizing permitting regulations and visualised the permitting process. We also classified main policy risks and identified most important bottlenecks, such as the lack of clear deadlines, unclear requirements in connection to environmental impact assessments (EIAs), and the need for improved coordination among authorities. A list of preliminary policy recommendations has been developed together with the discounted cash flow model which will be applied to quantify the policy risk premium.
In WP2, we conducted an analysis of past investments based on the BNEF database and conducted a cross-case study analysis of 19 realised energy projects by Swiss utilities in Switzerland and abroad. The analysis showed that nearly 70% of the projects are realized abroad, while return rates in most popular foreign destinations and in Switzerland are similar. In the meantime, expected returns for locations abroad are higher. Focus group discussions showed that the reason for higher return expectations abroad might be associated with higher risk sensitivity at home than abroad. Further interviews in 2017 and verbal protocol analysis will test this hypothesis as well as provide additional information about factors affecting the location choice for new projects.
In WP3, we constructed and sent out a questionnaire to 400 professional investors that could potentially invest in Swiss hydropower. 53 investors participated in a choice experiment, completing 1,129 experimental investment decisions. The results show that (a) utilities prefer co-investing with their peers rather than with pension funds, and vice versa; (b) pension funds are more risk-averse towards operational risk; (c) pension funds do not in general finance hydropower at lower cost than utilities; (d) pension funds are able to provide substantial capital, but most likely in cooperation with electric utilities.
Lowering The Financing Cost of Swiss Renewable Energy Infrastructure: Reducing the Policy Risk Premium and Attracting New Investor Types - Jahresbericht 2017
Lowering the Financing Cost of Swiss Renewable Energy Infrastructure | Reducing the Policy Risk Premium and Attracting New Investor Types - Schlussbericht
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