Sourcing funds

The European commission estimates that annual investments in renewable energy sources (RES) will have to double from €35bn to €70bn annually if Europe is to achieve the 20 per cent goal. In the aftermath of the crisis, with tight public budgets and still hesitant lenders, achieving this is a real challenge. The cornerstone of RES growth has been and will continue to be the strong national support schemes. These schemes will finance the majority of the required investments by 2020 and need to stay fit for purpose. Investments in RES have long-term perspectives and require a high up-front cost.

Certainty and predictability of the support schemes creates a stable investment environment, which minimises risk and improves investor confidence. On the other hand, ‘stop and go’ schemes and retroactive measures damage investor confidence and jeopardise future investments. Moreover, in order to signal the EU’s commitment to RES development and reassure investors that support for RES will not lose steam after 2020, an ambitious RES target of 45 per cent for 2030 should be set soon.

Even with stable and predictable support schemes, public funds at European and national level will have to be used in a smart way in order to catalyse the investments required to achieve the EU’s RES goal. Various financing mechanisms already exist – grants for R&D projects, loans, mezzanine funds, guarantees and equity for more mature RES technologies. The latter mechanisms generally aim at facilitating borrowing and reducing the risk of investors. Such mechanisms are currently used on the European level mainly by the European Investment Bank (EIB). They are successful in using limited public money to leverage private investments and support projects whose value is a multiple of the initial public contribution. Current EU financial support for renewable energy amounts to €9.6bn for the period 2007-2009 and is restricted by the EU’s next multiannual financial framework will have to reflect the priorities of the EU 2020 strategy, part of which is the development of RES. The EU’s next financial framework should hence strengthen successful EIB programmes while the new Europe 2020 project bond initiative should be given sufficient funds to effectively improve the attractiveness of large projects on financial markets. A dedicated renewable energy fund should also be created to attract investors by providing equity for RES projects on a revolving basis in cooperation with the EIB and the European investment fund. Part of the revenues gained through the emissions trading system and the carbon tax could be used to strengthen this mechanism.

Structural funds, which constitute a significant source of investments for member states could make a greater contribution towards the financing of RES projects. For the period 2007-2013, planned support for renewable energy activities from structural funds is only €4.8bn for the 27 member states. Apart from increasing the amount of funds allocated to RES, there is also scope to make their use smarter and more effective. Support from the structural funds comes in the form of non-refundable grants, which are rarely the most efficient way of supporting mature RES technologies. Member states should be given the choice to use structural funds with flexibility with regards to RES projects. Using structural funds as revolving funds in cooperation with the EIB has already been applied in the area of sustainable urban development. The mechanism could be refined and adjusted to the specific needs and characteristics of member states.

The successful achievement of Europe’s 20 per cent RES target by 2020 requires adequate and appropriate financing both at the EU and at the national levels. Different RES projects will most likely have different financing needs, while member states need flexible mechanisms that can adapt to their own characteristics. During a period of tight budgets we need to identify and create synergies between available resources through the use of the most efficient mechanisms. At the same time, investors need to be confident that they can take decisions based on stable and predictable national support schemes. If we succeed, Europe will be more competitive, more independent from fossil fuels and with more jobs for its citizens.