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Financing Corporate Growth in the Renewable Energy Industry


Christoph Ettenhuber

Financing constraints have been central to the political and economic debate about renewable energy development. This book addresses four related corporate finance questions. The first chapter reviews theoretical considerations and empirical evidence on so-called funding gaps. Chapters two and three analyze the genuine structures of equity and convertible debt offerings in the industry. The final part investigates to what extent business combinations are perceived as a valuable means to company growth. The analysis contains a variety of empirical findings that are novel to existing emerging industry and corporate finance research. It shows that many investors perceive the level of asymmetric information and regulatory risk, as well as the industry’s structure, to be detrimental to renewable energy finance.


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1 Introduction


The renewable energy industry has seen extensive shifts in industry dynamics in recent years. While the use of wind and hydro energy can be traced back to 200 BC, their role in the 19th and 20th century, when energy consumption dramatically increased, was marginal (Fleming and Probert, 1984). It is only since the beginning of this century that renewable energy carriers offer an increasingly competitive alternative to fossil and nuclear energy sources. Prior to 1990 renewable energy consisted mainly of hydro power. It accounted for approximately 3% of world energy consumption and displayed little growth potential due to the advanced utilization of favorable geographic locations.1 Wind energy gathered speed in the United States (U.S.) after the government’s introduction of investment incentives (1978) following the oil crisis in 1973.2 The first large-scale wind energy projects materialized in California, where over 16,000 machines with a total capacity of 1.7 gigawatts (GW) were installed between 1981 and 1990 – a small share of world and even hydro energy production (Righter, 1996). However, in 1990, the U.S. represented almost 80% of the world wind market (Kaldellis and Zafirakis, 2011). In Europe wind energy grew steadily in the 1980s, albeit from an even lower base. This changed with the disaster at the Ukrainian nuclear plant Chernobyl in 1986, which sparked an energy discussion in Europe and ultimately led to the introduction of a large-scale feed-in tariff system in Germany in 1990. The law (Stromeinspeisegesetz, StEG) required utilities to connect renewable energy producers to the grid...

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