Mobilising investments in renewable energy in Germany: which role for public investment banks?

ABSTRACT

Although renewable energy investments are not characterized by climate change mitigation as their primary objective, they still target activities that are related to the reduction of GHG emissions and are thus crucial for the transition to a low-carbon economy. The paper offers an analysis of the peculiarity of the German public finance framework aimed at renewable energy financing. On the one hand, it quantifies the amount of public financial capital, and types of financial instruments, devoted to renewable energy starting from 2010. On the other hand, it finds a strong relationship between public funding and the mobilization of private renewable energy investments. Our results point out that, despite the rapid growth of renewable energy investments in the past decades and the progressive reduction of GHG emissions, the country is facing difficulties in meeting the desired targets.

KEYWORDS:

• Public investment banks
• green finance
• renewable investment needs
• green finance gap
• renewable energy

Acknowledgments

The authors would like to thank one anonymous referee for helpful and constructive comments, which strengthened the current version of the article. Moreover, the authors are grateful to Miriam Athmer, Franziska Hoffart, and Matthias Reccius for comments on earlier versions that helped to improve the quality of the paper substantially. Paola D'Orazio acknowledges the financial support by the Research Department ‘Closed Carbon Cycle Economy’, Ruhr-Universität Bochum. The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 It includes EU-wide targets and policy objectives for the period from 2021 to 2030 such as 40% reduction in CO2, an increase in the share of renewable energy of 32%, and an increase in the energy efficiency of 32,5%, compared to the levels of 1990 (EC 2019).

2 While Germany has long shown an advanced path of adaption of the energy mix in comparison with other countries (Cox and Dekanozishvili 2015), the country has lost its role as a leader in climate change mitigation due to high dependence on coal power generation (Oei, Brauers, and Herpich 2019). The decision on coal phase-out until 2038, hence, urges the necessity of the further promotion of renewable energies in Germany.

3 NRW Bank has a specific program called ‘NRW Bank Energieinfrastruktur’ under which it provides financing for the expansion of energy infrastructure. However, data available for this program does not distinguish between RE and conventional investments. Therefore, because of the unavailability of data related to RE financing, this state-owned investment bank could not be included in our study.

4 For all programs, except the Programme Offshore Wind Energy, financing was only taken into account when the destination is in Germany. For the program Offshore Wind Energy, also foreign destinations are considered, as the program only finances wind parks in the area of the German North Sea and Baltic Sea.

5 Problems of comparability of volumes of the different instruments among institutions, however, inevitably arise because of inconsistent definitions of RE among institutions.

6 To the best of authors' knowledge, publicly available data on new commitments for RE is not available.

7 Scientists working at the ZSW are members of the expert committee Arbeitsgruppe Erneuerbare Energien-Statistik (AGEE-Stat), which is working on behalf of the German Federal Ministry for Economic Affairs and Energy, providing detailed information on the progress of renewable energies in Germany.

8

“[I]nvestment in renewable energy facilities is calculated based on newly installed capacity or the number of additional installations. This number is then combined with the specific investment costs (EUR/kW) or average cost per installation (EUR/installation) to determine the total investment per segment in the year under review. In the case of installations whose construction takes place over several years, investments are assigned to the appropriate period” (BMWi 2018, 67). See Appendix 4, Table A3 for additional information on the data used by IRENA.

9 Because of the current unavailability of data for some crucial variables, we leave the investigation of the determinants of such change for future research.

10 The EEG2000 was introduced in Germany in 2000 to achieve a share of renewable energy production of 50% of all energy units produced by 2030. The EEG was preceded by the Electricity Feed Act (‘Stromeinspeisungsgesetz’), which was passed in 1991. The original legal text, composed initially of few pages, proliferated and was replaced by an amendment in 2000, the so-called Renewable Energy Sources Act. The first proposal in September 1990 aimed at increasing the share of renewable energies in the overall energy supply to save resources and protect climate.

11 The NGFS is a (voluntary) network of central banks and supervisors established in December 2017. Its aim is to

“help strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development” (NGFS 2017b).

Additional information

Funding

Paola D'Orazio acknowledges the financial support by the Research Department ‘Closed Carbon Cycle Economy’, Ruhr-Universität Bochum [RD-CCCE 2019].