Finance and technological change

The low-carbon energy transition poses an investment and finance challenge: The International Energy Agency estimates that investments in energy infrastructure of more than USD 48 tn are needed by 2035. This can only be achieved by successfully re-directing and mobilizing additional private investments. Given that most low-carbon energy technologies feature high upfront cost, these investments require long-term and low-cost financing. EPG’s research around energy finance aims at identifying ways to efficiently use scarce public money, and effectively catalyze private finance into low-carbon infrastructure, which can enable the rapid low-carbon energy transition.

Analyzing financial flows and policy options for risk sharing
In this work stream we investigate the scale of financial flows to different technologies and the different risks involved across technologies and over time. We also analyze how these risks affect investment and lending decisions of the private sector. The aim is to identify options for reducing investment barriers and transferring risks from the private to the public sector (de-risking) and – at a later stage – options to re-transfer risks to the private sector (re-risking). With this research stream EPG is contributing to the external pageINNOPATHScall_made project under the EU Horizon 2020 research program.

De-risking energy investments in developing countries
In this work stream, we investigate the risks and associated barriers for private sector investment in low-carbon technologies in developing countries. We use expert interviews to identify and analyze the underlying risks, and expert elicitations and techno-economic simulations to model and quantify them. The intention is to propose packages of targeted public interventions to address these risks. Each public intervention acts in one of four ways: reducing, transferring, pooling or compensating for risk. The overall aim is to improve risk-return profiles in order to catalyze private sector investment into low-carbon technologies at scale. In this stream we are closely collaborating with the United Nations Development Programme (external pageUNDPcall_made).

The role of public banks (in catalyzing clean energy finance)
This work stream investigates the role of national and multilateral financial institutions in direct financing and catalyzing private finance for energy projects. For OECD countries, we aim to determine how public banks (such as State Investment Banks) address the needs of both renewable energy developers and financial stakeholders, and the banks’ impact on developers’ ability and motivation to introduce innovation to their projects. For developing countries, a mixed-method research project addresses the role of multilateral development banks in choosing power generation technologies –this research is supported through a seed grant from external pageETH Zurich foundationcall_made. Collectively, the projects aim to improve the understanding of the role of public finance in accelerating and redirecting technological change, essential to the low-carbon energy transition.

Selected publications:

Geddes, A., & Schmidt, T. S. (2020). Integrating finance into the multi-level perspective: Technology niche-finance regime interactions and financial policy interventions. Research Policy, 49(6), 103985. external pagehttps://doi.org/10.1016/j.respol.2020.103985call_made

Egli, F. (2020). Renewable energy investment risk: An investigation of changes over time and the underlying drivers. Energy Policy, 140, 111428. external pagehttps://doi.org/10.1016/j.enpol.2020.111428call_made

Schmidt, T.S., Steffen, B., Egli, F., Pahle, M., Tietjen, O., Edenhofer, O. (2019). Adverse effects of rising interest rates on sustainable energy transitions. Nature Sustainability, 2, 879–885 external pagehttps://www.nature.com/articles/s41893-​019-0375-2call_made external pageFree read-​only accesscall_made

Polzin, F., Egli, F., Steffen, B., Schmidt, T.S. (2019). How do policies mobilize private finance for renewable energy?—A systematic review with an investor perspective. Applied Energy, 236, 1249-​1268 external pagehttps://doi.org/10.1016/j.apenergy.2018.11.098call_made external pageFree download of Open Access papercall_made

Steffen, B., Schmidt T.S. (2019) A quantitative analysis of 10 multilateral development banks’ investment in conventional and renewable power-​generation technologies from 2006 to 2015. Nature Energy, 4, 75-​82, external pagehttps://doi.org/10.1038/s41560-​018-0280-3call_made external pageFree read-​only copycall_made

Egli, F., Steffen, B., Schmidt, T. S. (2018). A dynamic analysis of financing conditions for renewable energy technologies. Nature Energy, available online external pagehttp://dx.doi.org/10.1038/s41560-​018-0277-ycall_made external pageFree read-​only copycall_made

Geddes, A., Schmidt, T. S., & Steffen, B. (2018). The multiple roles of state investment banks in low-​carbon energy finance: An analysis of Australia, the UK and Germany. Energy Policy, 115, 158–170. external pagehttps://doi.org/10.1016/j.enpol.2018.01.009call_made external pageFree download of open access papercall_made

Steffen, B. (2018). The importance of project finance for renewable energy projects. Energy Economics, 69, 280-​294. external pagehttps://doi.org/10.1016/j.eneco.2017.11.006call_made, Free Download of Post-​Print (PDF, 410 KB)

Malhotra, A., Schmidt, T.S., Haelg, L., Waissbein, O. (2017). Scaling up finance for off-​grid renewable energy: The role of aggregation and spatial diversification in derisking investments in mini-​grids for rural electrification in India. Energy Policy 108, 657–672. external pagedoi:10.1016/j.enpol.2017.06.037call_made

Matsuo, T., Schmidt, T.S. (2017). Hybridizing low-​carbon technology deployment policy and fossil fuel subsidy reform: a climate finance perspective, Environmental Research Letters 12, 014002. external pagedoi: 10.1088/1748-​9326/aa5384call_made external pageFree download of open access papercall_made

Schmidt T. S. (2014). Low-​carbon investment risks and de-​risking. Nature Climate Change 4, 237-​239. external pagedoi: 10.1038/nclimate2112call_made Free Download of Post-​Print (PDF, 208 KB)