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Financing Power: Impacts of Energy Policies in Changing Regulatory Environments

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Power systems with increasing shares of wind and solar power generation have higher capital costs and lower operational costs than power systems based on fossil fuels. This increases the importance of the financing costs for total system cost. We quantify how renewable energy support policies can affect the financing costs by addressing regulatory risk and facilitating hedging. We use interview data on wind power financing costs from the EU and model how long-term contracts signed between project developers and energy suppliers impact financing costs. Regression analysis of investors' financing costs and an analytical model of off-takers financing costs reveal that between the support policies, the costs of renewable energy deployment differ by around 30 percent, but can be significantly lower or higher, depending on the financial situation of energy suppliers.

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Keywords: Investments, Long-term contracts, Financing costs, Liberalization of power markets, Renewable energy policies

DOI: 10.5547/01956574.42.4.nmay

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Published in Volume 42, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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