Energy Transition

Financing Consumer Co-Ownership in Renewables

Jens Lowitzsch, Jens Lowitzsch, Jens Lowitzsch

• Publisher: Palgrave Macmillan
• Year: 2019
• ISBN:
  9783319935188
• Topic: Economia
• Subtopic: Politica economica

Consumer (co-)ownership in renewable energy (RE) is essential to the overall success of Energy Transition. In June 2018, the European Union agreed on a corresponding enabling framework as part of a recast of the Renewable Energy Directive (RED II). The transposition of these comprehensive rules – in particular those on local RE communities – requires developing, implementing and rolling out business models that broaden the capital participation of consumers. The challenge is to include municipalities and/or commercial investors like SMEs and advance to economies of scale while retaining the benefits of individual consumer participation.
This book is addressed to energy consumers in local communities, their municipalities and to the policy makers who represent them. Additionally, non-EU countries, in particular those where rural areas have limited access to energy, e.g. in Asia, Africa and Latin America, may be interested in the benefits of consumer ownership. While demand for energy in developing countries is growing, access to energy is crucial for improving the quality of life.
The editor of this book presents a new model of consumer ownership in RE for both the EU and countries worldwide. Part One describes the rationale for consumer ownership in RE with regard to social, organizational, legal and financial conditions. Part Two discusses the issue of financing RE and introduces a new financing technique, the Consumer Stock Ownership Plan (CSOP), comparing it to traditional models. Part Three provides 18 country studies from Europe, North America, South America and Asia, organized so as to enable a cross-country comparison of policy approaches and feasibility. Policy recommendations are based on the results of this survey. Part Four summarizes, compares the best practice cases, presents a cost-benefit analysis of "prosumage" and against this background evaluates the impact on future policy.

© The Author(s) 2019

Jens Lowitzsch (ed.)Energy Transitionhttps://doi.org/10.1007/978-3-319-93518-8_1

Begin Abstract

1. Introduction: The Challenge of Achieving the Energy Transition

Jens Lowitzsch¹

(1)

European University Viadrina, Frankfurt (Oder), Germany

Jens Lowitzsch

Email: [email protected]

End Abstract

Renewable energy (RE) has made considerable progress in the last 25 years. Its percentage share of total energy production in the EU-28 between 2005 and 2015 grew from 8.7 to 16.7 per cent,¹ closing in on the 20 per cent goal set by the 2020 Climate and Energy framework. Reducing greenhouse gas by 20 per cent also seems attainable.² Similar progress in lessening the effects of global warming is taking place in other parts of the world although the key drivers and priorities are diverse. The ambitious objectives of the EU together with the bold steps taken by some Member States have prepared the ground for shifting to an energy supply that is competitive, sustainable and secure. Financing investments in renewable energy sources (RES), however, remains key to achieving the 2030 and 2050 goals of a low-carbon economy with increased energy efficiency. Switching energy systems from fossil fuels to RES requires financial, technical and social innovation. A new energy infrastructure must be built and individuals must be motivated to adopt flexible consumption habits to match demand with the supply of volatile energy sources.

The development and market rollout of innovative financing schemes for sustainable energy are also necessary to attain the EU-wide target of at least 27 per cent³ renewable energy consumption by 2030, as well as for the success of the new energy policy generally. Other nations have announced similar targets. China, for example, aspires to meet 15 per cent of primary energy demand with renewables by 2020 and 30 per cent by 2030. But these goals confront the same financing challenge. In a market historically dominated by large suppliers heavily invested in fossil fuels, citizens investing in RES have become a new category of market participants and an important impetus for meeting this challenge. For example, in Germany, a pioneer in renewables, more than 40 per cent of the installed renewable power capacity was owned by private citizens at the end of 2016 (trend:research 2016). As more and more renewable energy technologies (RETs) reach grid parity, a growing number of citizens will become prosumers,⁴ that is, producers of the energy that they consume.

At the same time, however, legislative conditions across the EU and worldwide which have so far limited financial risk and facilitated repayment of bank loans for RES installations have become less favourable; the change from guaranteed feed-in tariffs (FITs) to auction models especially is inclined to discourage individual commitment because they favour large-scale projects that can diversify risks through broad project portfolios. Simultaneously, politics is discovering the consumer to be a vital market player whose behaviour—whether as co-producer, self-consumer or investor—is crucial not only to energy efficiency but to acceptance of new RE installations and other new technologies, for example, smart meters.⁵ Educating and motivating individual consumer households to accept sustainable energy and their personal role in energy markets depends in part on the motivational power of ownership of RE installations be it at consumer premises or commercial production facilities. Although models for prosumership and consumer ownership in RES have made considerable progress in a few pioneering countries like Denmark and Germany, they are not yet widely implemented across Europe.

This raises the question of whether consumer ownership in RES is a transitory phenomenon or a necessary condition for transforming energy systems from fossil to renewable sources, in short, the energy transition. If a necessary condition, then how do we go about broadening participation? Is consumer ownership of RE production facilities merely politically desirable to satisfy expectations of participation arising from a concern for distributive justice or simply from expediency, that is, to make infrastructure projects publicly acceptable? Or do sound economic arguments exist for broad public ownership in RES, arguments related to the structural differences between renewables and fossils on which the success of the energy transition depends?

1.1 Background: Reorganising Energy Production and Ownership in RES

In many countries the energy transition goes along with decentralised, small-scale RETs which are changing the energy supply infrastructure (Arnold and Yildiz 2015). The most common energy production facilities are small- and medium-scale wind farms, solar and bioenergy projects. Wind and solar power are particularly suitable for schemes involving citizen participation, as the underlying technology, and thus the energy generation process, is not as complex as in bioenergy structures. The size and mix of the installed distributed generation capacity will depend on the relative costs and benefits of the specific technology (Pepermans et al. 2005). It is interesting that neither traditional finance schemes nor large investors are as relevant for RE as one might expect because of two factors which favour individual ownership participation schemes in RES:

• Established energy companies and other related technologies and networks are “locked in” to fossil fuel-based infrastructures (Unruh 2000) because of their heavy financial commitments and the relatively low risk-return ratios of RE projects (Arnold and Yildiz 2015).
• In comparison, RE projects with substantial citizen ownership do not need to concern themselves with worry about shareholder value and quarterly profit reports; they also lack the financial resources to take on large projects and thus are more likely to accept the relatively high capital costs per kW of installed power compared to large central plants (IEA 2002).⁶

1.1.1 The Financing Gap and Consumer Financial Participation

In order to limit global warming to 2 °C and avoid the worst effects of climate change, it is estimated that the world needs to invest an additional USD 1 trillion per year through 2050 (Fulton and Capalino 2014). While the year 2015 saw global investment in the energy sector of approximately USD 1.8 trillion, a total of about USD 3.5 trillion would be required each year from 2016 through 2050.⁷ Local authorities in charge of energy efficiency and climate policy with limited budgets often lack means to initiate new and innovative projects.

Closing the financing gap becomes even more important since investments in RE are an important driver of economic development and employment. A Commission study (European Commission 2014)⁸ finds that “new industries with a strong lead market potential have been created, which contribute a value added of about EUR 94 billion or about 0.7 per cent of the total GDP and an increase in total employment of about 2 million, that is, about 0.9 per cent of the total workforce in Europe in 2011”. RES investments would positively impact job generation (EC Expert Group 2016; Lehr et al. 2008; critical though Lambert and Silva 2012 and Böhringer et al. 2013). Different types of power plants require different installation and maintenance schedules. For example, a wind energy power plant requires intensive work during the installation period, construction, network connection and so on, but requires less maintenance than a photovoltaic plant which has to be cleaned frequently. The European Economic and Social Committee (EESC 2015) concludes that the growth in renewables brings about new jobs along its value chain “with this job generation effect being particularly high in the sectors of energy efficiency (0.38 job-years/GWh), PV (0.87), biofuels (0.21) and wind (0.17) when compared to coal and gas (0.11)”.

Prevalent business models—Present business models which fund RE investments of private individuals fall into two categories (Holstenkamp et al. 2017):

1. 1.
   Genuine, more egalitarian ownership schemes, for example, energy cooperatives, that typically are small- or medium-sized projects confronting the problem of being “sub-scale” investments.⁹
2. 2.
   Profit-oriented, market-centred investment schemes such as closed-end funds that attract money for large-scale projects but do not permit investor participation in decision-making.

If RE projects are to be combined with active citizen participation, both financially and in decision-making, new models must be innovated. The question is how do we retain the benefits of individual consumer participation when advancing to economies of scale while simultaneously including low-income households? Support for business models that facilitate consumer ownership in RES must first level the playing field; the objective is “equality of arms”. If investments in RE at the local/regional level are to succeed in an environment of regulatory conditions which favour large investments, that is, the worldwide trend towards direct marketing and auction models, consumer ownership models must be able to coexist with their competing commercial counterparts. This is ever more important in the light of the rent-seeking behaviour of large investors—often heavily invested in fossil fuels—aiming at securing advantages of their established market position and thus profits regardless of increasing cost efficiency.

Stakeholder involvement and financial participation—Financial participation has a complex relationship with participation in decision-making and stakeholder involvement in general. In addition to helping to close the financing gap, the involvement of all stakeholders is now recognised as crucial to the success of policies responding to climate change, including the shift to green energy. Participation can take diverse forms and occur at different stages of project implementation: (1) information about the ongoing development, (2) participation in decision-making during the planning process and (3) financial participation in the project. While the first two forms of participation involve all stakeholders, the last one is reserved to shareholders. In addition to the obvious benefits of engaging citizens in decision-making during the planning phase (Devine-Wright 2005), financial participation in the project itself has material benefits, namely, the right to share in the investment profits. With regard to participation in decision-making, the involvement of citizens as consumers that become (co-)owners can take either of two forms:

• Passive financial participation which involves no role in decision-making and where investment return is the principal objective (e.g. bonds, loans, silent partnerships and limited partnerships)
• Active financial participation, where citizens-owners ...

Table of contents

• Cover
• Front Matter
• 1. Introduction: The Challenge of Achieving the Energy Transition
• Part I. Rationale for Consumer Ownership in Renewable Energies
• Part II. Consumer (Co-)Ownership: Conventional Models and Consumer Stock Ownership Plans
• Part III. Country Reports
• North America
• South America
• Asia
• Part IV. Summary of the Results and Their Implications for Policy-Making
• Correction to: Consumer (Co-)Ownership in Renewables in California (USA)
• Back Matter