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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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6 Concluding Remarks and Outlook


This dissertation investigated the financing constraints and financing behavior of renewable energy companies. It identified industry-specific financing challenges and analyzed specific means of financing corporate growth. This final chapter summarizes the key results and points to potential future research in the field. Chapter 2 provides a detailed review of industry-specific financing constraints. It serves as a basis to subsequent analyses and shows that unique market features create a challenging environment for renewable energy investors: first, the emerging life-cycle stage and speed of innovation creates informationally opaque markets. Second, the predominantly small- and medium-sized structure of the industry make funding more difficult, because fixed transaction costs weigh heavily on projects’ profitability. Third, government intervention comes at the cost of increased regulatory risk that many investors are unwilling to take. Fourth, despite the introduction of quotas and feed-in tariffs, many markets re- main at an external cost disadvantage to conventional energy means. Finally, the capital intensity and longevity of energy projects may impede the availability of capital to high-risk projects. However, our review shows that these arguments, while frequently echoed in case studies, have varying degrees of empirical support. In fact, only the transac- tion costs-based underfunding has convincingly been shown to impede the (eq- uity) financing of smaller companies. The lack of research in the field is due to both data availability as well as methodological difficulties. The latter derive from the fundamental problem of isolating good from bad investment projects as some may not receive adequate financing as a result...

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