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Risk Reduction by Law: An Assessment of the German Renewable Energy Sources Act

In: Modern Finance and Risk Management Festschrift in Honour of Hermann Locarek-Junge

Author

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  • Sven Loßagk

Abstract

Since the early beginning, the continuously amended German Renewable Energy Sources (RES) Act (Erneuerbare–Energien–Gesetz, EEG) is an important contribution to the reduction of carbon dioxide, by setting a framework for investments in RES projects, e.g., wind onshore. Besides many other aspects, the substantial change in the reference yield model from EEG 2014 to EEG 2017 should increase the incentives in realisation of projects by reducing the financial risk, resulting from future wind conditions. This study analyses the risk situations of lenders and shareholder in a project finance structure in different EEG-versions using Monte-Carlo simulation and different risk metrics on the basis of the annual debt service cover ratio (ADSCR), loan life cover ratio (LLCR) and net present value (NPV). The simulation results confirm the decrease in financial risk for both capital holders (EEG 2014 vs. EEG 2017), however, the degree of risk reduction is surprisingly high.

Suggested Citation

  • Sven Loßagk, 2022. "Risk Reduction by Law: An Assessment of the German Renewable Energy Sources Act," World Scientific Book Chapters, in: Tony Klein & Sven Loßagk & Mario Straßberger & Thomas Walther (ed.), Modern Finance and Risk Management Festschrift in Honour of Hermann Locarek-Junge, chapter 16, pages 353-377, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800611917_0016
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