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Press Release

Fraunhofer Institute for
Systems and Innovation Research ISI

Higher costs of renewable energies due to unstable energy policy

Press Release 10.02.2016

The cost of capital for investing in onshore wind power varies strongly from country to country in the European Union: While this is only 3.5 percent in Germany, it amounts to 12 percent in Greece and Croatia, with the other Member States lying in-between these figures. The main reason for these differences is the varying risk for investors resulting from the different designs of renewable energy policies among other things. The EU could reduce the support costs of wind energy by around 15 percent at uniform low risks. This is the result of a study conducted by the Fraunhofer Institute for Systems and Innovation Research ISI, Ecofys, Eclareon and the National Technical University of Athens as part of the DiaCore project.

The European Union has set itself the target of generating at least 20 percent of its energy consumption from renewable sources by 2020. Investments of about 60 to 70 billion euros per year will be required for this according to estimates of the Fraunhofer ISI, Ecofys and the Vienna University of Technology. Because renewable energy technologies are characterized by high initial investments, the cost of capital plays an important role for the decision for or against investment, and with regard to the necessary funding support.

WACC across the EU-28 (interview results for onshore wind)zoom

The cost of capital is made up of the cost of borrowing capital (for example interest on loans) and the cost of using equity (for example fewer dividends paid to shareholders) – and these are different in each EU country. As an example for 2014, the DiaCore study shows that the equity costs for investing in onshore wind projects range from 6 percent (Germany) to 15 percent (Estonia, Greece, Latvia, Lithuania, Romania, Slovenia). The costs of borrowing capital lie between 1.8 percent (Germany) and 12.6 percent (Greece). This results in a weighted average cost of capital of between 3.5 to 4.5 percent for Germany and 12 percent for Greece and Croatia. Low interest rates similar to those in Germany are found in France (5.7 percent), Belgium (5 to 6 percent) and Denmark (5 to 6.5 percent). Alongside Greece and Croatia, high rates are also found in Hungary (11.3 percent), Romania (11.1 percent) and Slovenia (11 percent). The other EU Member States lie in-between (see diagram).

Risks for investors increase the costs of capital

The figures are based on interviews with more than 110 banks and onshore wind project developers in the EU. Single figures are given if all those questioned in the country gave similar answers. Ranges are listed if the figures mentioned in the interviews varied greatly. The results of the interviews on onshore wind can be transferred to other renewable energy sources to a certain extent, mainly to solar installations.

Professor Mario Ragwitz, who coordinated the DiaCore project at the Fraunhofer ISI, emphasizes: “This inequality in the financing possibilities results mainly from the different country-specific risks for investors – if a project seems risky, the costs of capital go up. A decisive risk to investments in renewable energies is uncertainty about the long-term reliability of funding, for instance due to unstable energy policy with sudden frequent changes. If this is prevalent, the costs of investing in renewables automatically increase.”

The gap between countries with low and those with high costs of capital is expected to grow even larger according to the study. And yet reducing the differences would be worth it: If all 28 EU countries had a renewable energy policy that offered a similarly low risk to investors as is the case in Germany, France, Belgium and Denmark, this would save about five billion euros each year in costs of capital. Dr. Barbara Breitschopf, who coordinates the studies on financing renewables at the Fraunhofer ISI, observes: “The most important factor here is having reliable policies. This means no retroactive or short-term changes so that investors can calculate and plan the risks influenced by policy. In addition, risks that are not market-related, for example delays due to administrative processes or grid connections, should be covered or at least reduced by designing policies accordingly.“

The study “The impact of risks in renewable investments and the role of smart policies” can be downloaded at


About DiaCore

The DiaCore project (Policy Dialogue on the assessment and convergence of RES policy in EU Member States) is co-funded by the European Union as part of its Intelligent Energy Europe Programme. The project is led by the Fraunhofer Institute for Systems and Innovation Research ISI, Ecofys, Eclareon and the National Technical University of Athens. The aim of the project is to continuously assess the policies to promote renewable energies and establish a dialog about future policy needs.

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.