The crisis in the world caused by the war in Ukraine is increasingly complicating things both politically and economically. The bloodstream of the economy and energy is under attack. Development of the global economy is impossible without energy. Precisely because of its strategic role, energy has become the main “trading currency” in this conflict, which continues despite forecasts of a quick end to military operations.
Energy stability is the number one issue these days, and access to cheap energy is a factor for even minimal growth of economies, especially in the European Union. Investments in renewable energy will provide access to cheap energy, necessary for economies facing a range of challenges from the health crisis and now the political crisis. Although investments in renewable energy fell slightly last year, the renewable energy sector is again one of the most attractive for investment. The reason for this is the continuous increase in energy consumption and the historical growth of prices from conventional sources. High demand and expensive energy prices are the motivation and solid business model to invest in a better supply in the markets. The international political consensus on reducing CO2 emissions and abandoning the old models creates an additional favorable climate, but challenges remain. The health crisis and now the war in Ukraine have pushed up the prices of materials used to install solar and wind farms. In addition to rising prices for materials and raw materials, the supply chain has also become more difficult. However, it seems that despite these unfavorable trends, investments in renewable energy sources continue to grow this year.
Obviously certain reforms and institutional support in certain countries, as well as the innovative approach to financing these projects, are yielding results. Additionally, the interest for increasing investments in this sector is accelerating as a result of the great interest of corporations in investing in green energy. This is vital for corporations, as it reduces costs, increases competitiveness, and contributes to greater decarburization.
In order to intensify investments in renewable energy sources, which will increase the capacities, the investment conditions will have to be improved, but also to increase the utilization of the new innovative mechanisms, which reduce the risk but also increase the predictability. Predictability is something that investors are most interested in. If we take into account the target for 0 CO2 emissions by 2050, which will require $125 trillion of fresh capital in this sector, then it is necessary to continuously improve investment conditions and improve the business climate. In that direction, the agreements for the purchase and sale of electricity – PPA, i.e. purchase of energy directly from the generator, instead of a trader is a model that investors look at with favor. Last year this type of agreement increased by 50% in the EU. In addition to this model for increasing investments in renewable energy sources and increasing capital in this sector, one of the solutions is the innovative financing mechanisms, which contribute to reducing investment risk. For example, bonds of certain countries to invest in new renewable energy facilities provide some risk mitigation. Additionally in this sector, the attitude of the large international financial institutions is important for increasing the investments. An example of this is the European Bank for Reconstruction and Development’s 56m-euro bond investment in a 233m-euro bid from Tauron Poland Energy. Namely, if Tauron fulfills its goals for decarburization by 2030, there will be lower financial costs, according to the World Economic Forum.
Gathering fresh capital through IPO on the stock exchanges proves to be an excellent model for investment but also for earnings and return on investment. However, the state of the markets indicates that this model works well in certain markets, while in others it is necessary to work on the development of additional preconditions in order to use its potential. In order to improve investment conditions, it is important for governments to continue policies to create a good business climate for the development of this sector. Although there has been progressing in reducing bureaucratic procedures for obtaining permits, licenses, etc., bureaucracy in some countries is still long and expensive for investors. Of course, in this direction is the tax policy such as reduction or complete exemption of investors who invest in renewable sources from the profit tax and abolition of the value-added tax for the sale of green energy.