Europe would need to factor in a capital expenditure in the region of stg£70bn a year in order to effect a move away from fossil fuels and onto wind and solar energy, a senior partner at PwC’s Energy Practice said today at the Green Growth Forum in Dublin.
John Gibbs, a senior partner at PwC’s Global Renewable Energy Practice said: “Meeting the 2020 targets for Europe will require a huge investment across a range of technologies, with onshore wind being the dominant technology and that has to be very exciting.
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“In terms of the biggest proportion of this spend it will be offshore wind but at present it is the smallest.
“The investment required would be stg£70bn a year.”
To put that in context, Gibbs said the UK is imposing a maximum capital allocation of around stg£2bn per annum.
“This doesn’t translate into many megawatts, particularly from offshore – it will be less than half of what’s required.”
Gibbs said that across Europe, the move to renewable energy will be challenged by shortfalls in spending and that a range of options need to be examined, from bank finance and venture capital to multilateral agencies and new innovative forms of raising the money needed, such as capital markets and equity.
“It’s not entirely true that post-credit crunch finance has dried up. It’s actually quite encouraging that more deals are being done using project finance. They all have very specific characteristics in terms of making the deal work, the treatment of risk and risk appetite, but also the participants who help commercial banks get over the line.”
Gibbs said various national governments need to play an active role, as well as bodies like the European Investment Bank and other multilateral agencies.
He cited the example of the Green Investment Bank in the UK, which has played an important role in helping banks get over the line in funding new energy infrastructure.
He said agencies like KFW in Germany and EPF in Denmark play a critical role.
“Banks are prepared to come in on a syndicated level – there are lots of banks in every deal – but some have hold levels of stg£40m. It’s like herding cats, it’s very tough.”
Gibbs said novel new financing arrangements, such as project bonds, will help and he has seen a real uptick in the involvement of financial institutions in renewable energy deals.
“The European Investment Bank is working on Europe 2020 bond initiatives to remobilise the capital markets and involvement of institutional investors in new-build construction projects,” Gibbs said.
Funding green-tech companies
Gibbs said funding green-technology companies – despite the urgency of the matter and the innovative quality of the companies – is nevertheless an uphill battle and he cited firms in the UK that after spending millions on their technology reach the valley of death where in the absence of further funding mechanisms spell disaster.
“Somewhere in the middle there is scope for the EU to provide support and there is an interesting debate to be had around what this should look like.”
One interesting mechanism he proposed was the selling of carbon credits to generate funding which could then be used to subsidise projects.
But he said the nub of the issue is EU funding not being released until a project is actually built.
“The challenge is how do you support ideas at a scale that proves they work – there is a lot of scope for an interesting discussion on the matter,” Gibbs said.
Watch John Gibbs deliver his keynote address at the Green Growth Forum: