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Financing Corporate Growth in the Renewable Energy Industry

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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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2 Financing Constraints in the Cleantech Industry – Theory and Evidence

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This chapter seeks to identify and review the financing constraints of cleantech companies. It is motivated by fact that an increasing number of governments directly influence the corporate financing of the industry. A recent example is the public-private partnership fund by the British government, which makes at- arms-length investments in cleantech companies (Department of Business, Innovation and Skills, 2010). In May 2012, the U.S. announced the imposition of antidumping tariffs on Chinese solar panels. China has been alleged to subsidize the industry by means of cheap credit (The New York Times, 2012). The Cleantech Group, a market intelligence provider, notes (2010, p. 5): Indeed, it was at the government level the first strong signs of a new ‘space race’ began emerging, with the prize being dominance of the new cleantech markets. Fueled by unprecedented quantities of “green and clean” stimulus money, cities, states, provinces and countries have aggressively begun competing to grow cleantech businesses, to bring innovation to market, to attract inward investment and to brand themselves as hubs of cleantech growth. Many governments regard the emerging renewable energy market as an opportunity to grow their economies, relocate value chains and attract high value-added employment. To achieve this, governments’ support has grown beyond the provision of infrastructure and fundamental research. Such interventions are frequently justified by market failure. In some cases and for various reasons, it has been argued, capital markets fail to allocate funds to their most efficient use (European Commission, 2006). Young, small and innovative companies, in particular,...

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