The impact of risk in renewable energy sector and support schemes

Abstract

All projects and investments involve risks. This applies to small local projects as much as to big projects were high amounts of money are invested. There are a lot of examples of projects that caused already in the construction phase a cost explosion and where completed later as planned. As a consequence, quantitative risk analysis nowadays enjoys worldwide rapid growth in popularity amongst businesses and governments. Notwithstanding, the popularity of risk analysis does not seem to have been matched with corresponding improvement in the understanding of its techniques. Introduced in April 2000, the German Renewable Energy Source Act (Erneuerbare- Energien-Gesetz - EEG) has provided planning reliability for renewable energy projects. Further in 2014 the new EEG leads to essential modifications in the scheme conditions. From 2017 a competitive tendering process will be introduced. Nowadays the majority of renewable energy is sold directly on the stock exchange. Direct marketing is a rule and only in exceptional cases will plant operators receive feed-in tariffs. The market for renewable energy is still subject to constant change in terms of regulatory framework, technologies and investor base. Between 2012 and 2014 the installed capacity of renewable energy falling under the optional market premium scheme increased European-wide by 54%, making up of 52% of total installed renewable energy capacity and 63% of renewable energy electricity produced in the year 2014. Mainly wind and biomass producers decided for the market premium scheme on a voluntarily basis. Out of this, the feed in tariff scheme, including a generous -direct marketing- bonus, has been very effective in incentivizing RES producers to become active participants in the market. Figure 1 illustrates how investments in renewable energy have developed in the last 10 years, peaking in year 2011. Furthermore it clearly shows that the most changes in subsidy scheme were carried out during the period 2010-2012.

All projects and investments involve risks. This applies to small local projects as much as to big projects were high amounts of money are invested. There are a lot of examples of projects that caused already in the construction phase a cost explosion and where completed later as planned. As a consequence, quantitative risk analysis nowadays enjoys worldwide rapid growth in popularity amongst businesses and governments. Notwithstanding, the popularity of risk analysis does not seem to have been matched with corresponding improvement in the understanding of its techniques. Introduced in April 2000, the German Renewable Energy Source Act (Erneuerbare- Energien-Gesetz - EEG) has provided planning reliability for renewable energy projects. Further in 2014 the new EEG leads to essential modifications in the scheme conditions. From 2017 a competitive tendering process will be introduced. Nowadays the majority of renewable energy is sold directly on the stock exchange. Direct marketing is a rule