Financing the Energy Transition in Times of Financial Market Instability

One of the most pressing public priorities in Germany at present is how to organize the energy transition. However, the cost of stabilizing the financial sector as well as the fiscal pact and the debt brake mean that the government has limited financial resources. Consequently, the availability of private capital, whether in the form of equity or debt, is becoming a decisive factor in the success of the German energy transition. Recently, there have been increasing indications that banks are very reluctant to provide loans and are focusing on the potential risks of financing the switch to renewable energy. At the same time, however, the financial sector is also wrestling with political decision-makers about the capital requirements of the loans concerned. Yet, reducing the capital base in the banking sector is out of the question. Instead, the government should also call for appropriate involvement of the major banks in financing the energy transition in return for implicit guarantees for those banks, just as financial aid from the government was linked to loans being granted to SMEs in 2008. At the same time, the risks have to be spread more widely. Know-how and financial strength of private equity funds may be of help here.