Private investors are all geared up and ready to go: investments in renewable energies hold particular appeal for institutional investors with a long-term investment horizon.
Allianz has been one of Europe's leading institutional financial investors in renewable energies for more than 10 years now. Its interest in the sector started with a number of direct investments in Italy, followed by investments in Germany and France. The size and complexity of the investment projects have been steadily increasing ever since. Today, Allianz has invested over EUR 3 billion in more than 70 wind farms and solar parks in Germany, Austria, France, Italy, Sweden, Finland and the US. The projects have a total capacity of 1.8 gigawatts - enough to supply electricity to a city the size of Paris.
Like many other institutional investors, Allianz is keen to increase the volume of its investments even further, supporting the general move to alternative energy sources in the process. The focus remains on tried-and-tested technologies that ensure predictable cash flows in the long run.
These investments require reliable national climate and energy strategies, specific and transparent subsidy mechanisms and fair competition compared with fossil energy sources. General factors like inflation, an economy that is open to foreign investors and legal certainty also play a role.
Specific examples of challenging investment environments include:
- A retroactive reduction in electricity prices,
- Scenarios in which subsidy schemes are later abolished,
- European Union unbundling provisions, which state that investments cannot be made in energy producers and grids/networks at the same time.
To date, the investment environment has been bolstered by the German Renewable Energy Sources Act (EEG) - the most successful system for the promotion of renewable energy to date. The reliability, predictability and political backing that this system offers make it a shining example of how to structure a successful subsidy mechanism, and have played a key role in transforming renewable energy - once a niche product - into the backbone of energy and climate policy. While the plans to make the system more cost-efficient by introducing auction mechanisms is a welcome development and one that certainly makes sense, it remains to be seen how, exactly, the changes will be implemented and what sort of impact they will have.
The agreement reached on global climate targets in Paris also sent out a key positive signal. The resulting obligations that the governments need to meet will provide the framework for private investors in terms of the expected expansion of the necessary infrastructure.
To find out more about how the world’s 19 largest economies are faring in their efforts to transition to low-carbon economies, please see our new Allianz Climate and Energy Monitor.