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

Sven Loßagk

Chapter 16 in Modern Finance and Risk Management:Festschrift in Honour of Hermann Locarek-Junge, 2022, pp 353-377 from World Scientific Publishing Co. Pte. Ltd.

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.

Keywords: Finance; Risk Management; Commodities; Energy Finance; Risk; Cryptocurrencies; Asset Management; Banking; Behavioral Finance; Behavioural Finance; Markowitz; Portfolio Selection; Asset Allocation; Crowdfunding; COVID; Pandemic; Corona; Investment Strategies; Low-Risk Investments; Social Banks; Excess Liquidity; Cost of Capital; Utilities; Network Industries; Private Equity; Small and Medium-Sized Enterprises; Black Swan; Statistical Inference; Maximum Likelihood; Bayesian Methods; Tail Risks; Conditional Value-at-Risk; Tail Nonlinearly Transformed Risk; Capital Constraints; Bank Regulation; Subjective Risk Assessment; Expert Knowledge; Model Risk; Risk Factors; Option Pricing; Volatility; Resilience; Supply Chains; Disruption; Systemic Risk; Oil; Renewable Energies; Corporate Risk Management; Power Purchase Agreements; Gold; Precious Metals; Dynamic Correlation; Mixed Data Sampling (search for similar items in EconPapers)
JEL-codes: G11 G3 G32 G4 (search for similar items in EconPapers)
Date: 2022
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