Investors’ perspective on renewable energies
The question of how to effectively mobilise financial resources for the deployment of RE and complementary infrastructure has been a major concern both in the academic and political debate (Bergek et al., 2013a; De Jager et al., 2011; Mathews et al., 2010b; Mowery, Nelson, & Martin, 2010b; Veugelers, 2011; Wustenhagen & Menichetti, 2012). Mathews et al. (2010b, p. 3263) note that “the issue of public vs. private financing is not yet adequately explored”, but add that there is consensus among policy makers that the transition to a low carbon economy will not happen without the involvement of private institutional investors (Muller et al., 2011; Popp et al., 2011).
Investments in RE deployment by institutional investors (i.e. investment/ pension funds, banks and insurance companies) are typically hindered by a number of factors; high upfront costs, risks, and uncertainty regarding long-term viability of the technology, long payback periods, high regulatory and infrastructural dependency as well as public acceptance (Cardenas-Rodriguez et al., 2013; De Jager et al., 2011; U. C. V. Haley & Schuler, 2011; Kenney & Hargadon, 2012; Muller et al., 2011). These factors directly influence the risk/return profile of an RE investment, which is a major determinant for institutional investors (Cardenas-Rodriguez et al., 2013; Dinica, 2006).
Bergek et al. (2013a) consider the evaluation criteria used by the heterogeneous group of RE investors, such as (overall or portfolio) cost, perceived (market) uncertainty and political risk. They argue that purely economic analyses (i.e. focusing on risk and return) fall short of capturing the wide range of factors influencing the decisions and processes for investing into RE technologies. Chassot et al. (2014) confirm this proposition by highlighting the moderating effect of worldviews, however, they highlight the perceived risk caused by policies as the main determinant of investment decisions. Based on insights from project developers, regulatory risks and the streamlining of the administrative process (grid access) have been identified as relevant decision criteria (Friebe et al., 2014; Luthi & Prassler, 2011; Luthi & Wustenhagen, 2012b).
The ultimate requirement for a sustainable RE policy is a reduction of capital costs to create a level playing field with fossil fuel-based technologies which have been heavily subsidised in the past (Szabo & Jager-Waldau, 2008). Thus, monitoring of these costs is crucial. Szabo & Jager-Waldau (2008) suggest that a more competitive financial environment could actually reduce the costs of capital for RE projects, given that capital markets function efficiently. Therefore, a combination of supportive financial regulation and transparent policy making would be conducive to institutional investors to compete for building RE capacities (Bergek et al., 2013a; Luthi & Wustenhagen, 2012b; Wustenhagen & Menichetti, 2012). This environment would in turn lower the perceived regulatory risk and, thus, lower the financing costs for RE projects while still allowing reasonable rates of return. Decreasing support corresponding to technological development, meaning adaptive policy making, can furthermore spur the deployment of more innovative technologies (Szabo & Jager- Waldau, 2008).
With our analysis we explore which policy instruments have been conducive to RE investments by institutional investors, thus we examine this relationship over time. We answer the call for research of Wustenhagen & Menichetti (2012) by specifically investigating the role of policy on the perception of institutional investors.