Energy investment needs 'strong regulatory push'

Europe needs to invest hundreds of billions of euros in new energy networks and renewable energy production. Most of this money will have to come from "the market", but financial experts agree that, left to their own devices, banks and energy companies are neither able nor willing to do all that needs to be done. They say that a strong inflow from additional sources, such as dedicated investment funds and public institutions, will be indispensable. The European Commission has already started preparing a "tool box" that will contain "innovative market-based solutions" intended to seduce investors. But one private investor warns that if the EU is to achieve its ambitions with regard to climate and the internal market, the EU and member state governments will have to take a much more active role. 'A strong regulatory push is required'.

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érôme Guillet, co-owner of Green Giraffe Energy Bankers (GGEB), a French-Dutch specialist advisory company focused on the renewable energy sector, sounded a slightly different note at the breakfast meeting. According to the Frenchman, who has been active in the financing of virtually all offshore wind projects in North West Europe to date, money as such is not the biggest problem for the renewable energy sector. The problem is that unlike gas-fired power plants, renewable energy projects require large upfront investments and therefore yield a lower initial rate of return.

As financial markets are always looking for high initial rates of return, said Guillet, a purely market-based regulatory framework will always favour investment in gas-fired generation. `Gas-fired electricity is not necessarily cheaper', he said. `But since gas-fired power sets the price in the market and has low capital costs, it does tend be more profitable - and in a shorter time. Gas-fired power also provides more trading opportunities.' For this reason, he said, investments in renewable energy will require a strong `regulatory push' from the EU and Member State governments. `Nothing capital-intensive will get built without firm supporting policies', he said. `The key investment requirement is long-term price visibility - and this can only come from public decisions.'