Journal
ENERGY STRATEGY REVIEWS
Volume 26, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.esr.2019.100373
Keywords
Climate change mitigation; Electricity; Europe; Risk; Capital costs
Categories
Funding
- EU Research and Innovation Framework Program Horizon 2020 [642260, 776479]
Ask authors/readers for more resources
To mitigate climate change, societies strive to transform the energy sector towards greenhouse gas emission neutrality, a move which assessment studies often indicate incurs large macroeconomic costs. In this context the weighted average costs of capital (WACC) are especially important, as renewables are highly capital intensive. In particular, investors' perceptions and expectations of risks are fundamental determinants of WACC and thus strongly influence the macroeconomic outcome of transition analyses. For the case of Europe's electricity sector transition, we analyze this sensitivity by choosing different WACC settings, driven also by different policy settings redirecting expectations. First, we find that when differentiating WACC across regions and technologies more accurately than usually done in the literature, immediate and substantial macroeconomic benefits from the transition emerge. We thereby reveal a systematic overestimation of low-carbon transition costs in the literature. Second, we find that when pricing-in increasing trust in renewables, these benefits get significantly larger, outweighing possible negative macroeconomic effects from the risk of stranding of fossil-based assets. We also demonstrate that in developed regions such as Europe, de-risking renewables is an effective lever for reaching climate targets, which indicates the relevance of green macroprudential regulation.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available