The critical importance of investing in renewable energy to mitigate climate change cannot be overstated. Renewable energy projects are capital-intensive and risky. With this unbalanced risk and return profile, private-sector financial actors are often not in a position to fund these projects. Furthermore, the current magnitude of renewable energy financing is still low, particularly in comparison to the climate change mitigation goals set by policymakers. Because renewable energy investments fall short of what is needed, we can speak of an investment gap in renewable energy generation and technologies

This study centres on the (private and public) renewable energy investment gap in the Netherlands. The Netherlands was chosen since the literature lacks a comprehensive overview of the nation’s renewable energy financing. Furthermore, the Netherlands has not yet met its renewable energy targets which signifies the need for increased investments in the renewable energy sector. Government funding for renewable energy projects encounters certain constraints, primarily due to the Stability and Growth Pact, which dictates that EU members must maintain fiscal discipline, meaning that the government has to operate within a specific budgetary limit. Therefore, the private sector has a pivotal role to play in bridging the renewable energy investment gap. This shows the necessity for collaboration between the public and private sectors to mitigate climate change. Governments can use policy instruments to motivate or mobilise additional green investments by private financial actors.

Against this background, this master thesis investigates the following research question: How can the mobilisation of Dutch private investors in the renewable energy sector close the renewable energy financing gap?

To address this question, four deliverables are presented. Firstly, Chapter 2 offers a comprehensive literature review within the designated field. Secondly, Chapter 4 empirically estimates the investment gap in the renewable energy supply in the Netherlands. Thirdly, statistical analysis is used to investigate the relationship between private financing and public policies and financing. Comprehensive data collection was conducted for both public and private financing; specifically, a time-series database (2004-2022) has been constructed for green financing by major Dutch banks and pension funds, drawing on annual reports and sustainability reports published by these actors.

This third deliverable includes two sub-deliverables. Firstly, Chapter 5 presents a descriptive analysis of the Dutch renewable energy financial landscape, based on the database that has been created during this research. This analysis includes research on Dutch commercial banks with a sustainability index, an analysis of the green bond market, an analysis of renewable energy consumption in the Netherlands and public policies. Secondly, Chapter 6 presents a regression analysis performed to understand the relationship between private sustainable financing on the one hand, and public policy support and direct public investments on the other hand. This was conducted with the following statistical methods: an OSL regression, univariate regression, and factor analysis. The fourth deliverable presents a validation of the findings conducted in the literature review and the regression analysis. This validation was conducted through semi-structured interviews with experts in the renewable energy sector, including private financial actors, government policy experts and an expert in renewable energy generation. This deliverable is presented in Chapter 7.

The findings of this thesis report are as follows. The analysis of the investment gap in renewable energy supply in the Netherlands shows that a substantial step-up of 132% in investments towards renewable energy supply is required for the Netherlands to reach its committed decarbonisation targets consistent with the IPCC scenario of 1,5°C global warming. Moreover, when evaluating the investment requirements against the total economic investments, investments directed toward RE need to account for 10.4% to 12.5% of all total investments in the Dutch economy by 2025 to bridge the RE investment gap. This analysis shows a sharp increase in investment requirements from now until 2030; in contrast, the period from 2030 to 2050 may not require a drastic increase. This is based on the significant initial upfront capital required to cover the cost associated with the technology development as well as economic scaling up. However, before that can occur, an initial larger investment is required. After 2030, a slowdown of the investment requirements is based on the belief that the infrastructure will be established by then and the technologies will be mature and more efficient, lowering the cost. This analysed investment gap created the base for the research, showing the need to understand the financing landscape and the relationships between the financial actors and public policies.

Once the investment gap had been estimated, the focus of the research turned to understanding its underlying causes and potential solutions for this underinvestment. A comprehensive primary data collection began when data on private financing for specific financial actors in the Netherlands proved to be missing. The results derived from the created database are various. Firstly, a sustainability index for the Dutch banks was created. This sustainability index serves as a measure of each bank’s commitment to funding aimed to mitigate climate change, relative to their respective market size. Based on this sustainability index, the analysis reveals substantial differences between those banks. Triodos, with the least market share, scores the highest in sustainability while ING which allocates the largest figure
towards sustainability is ranked second last in regards to sustainability in the banking sector relative to its size. This highlights the importance of the bank’s commitment to sustainability, irrespective of its size. Secondly, in regard to the government, expenditures for mitigating climate change are mostly in the form of subsidies towards renewable energy projects. On average subsidies were 88,62% of the total government expenditures towards mitigating climate change. The largest subsidy fund is the Stimulering Duurzame Energieproductie en Klimaattransitie (SDE++). Lastly, the research identified Dutch pension funds as the leading entity in the Netherlands’ green bond market. As of March 2023, these pension funds accounted for 53% of the country’s total green bond holdings. Moreover, they have shown an impressive increase of 286% in their green bond holdings from 2019 to 2023

The statistical findings show a positive effect of direct public financing on private financing in the Netherlands. More specifically, with a 10% increase in public financing, private financing increases by 6%. Monetary policies such as increased environmental taxation and low interest-rate lending positively affect private financing, or for a 10% increase in direct public policy support, private financing increases by 7%. Findings show that with increased renewable energy consumption, private financing increases. FITs and total energy consumption (including both renewable energy and non-renewable energy sources) show an inverse relationship with private financing, with a 10% increase in total energy consumption and price setting by FITs, the private financing decreases by 9,9%. The crucial findings emphasize the urgent need to mobilise private actors, who possess significantly more financial resources compared to the government, in mitigating the climate crisis in the Netherlands. Their active participation is essential for effectively addressing this pressing environmental challenge.

It is crucial to emphasize that, consistent with the literature review and validated by the interviews, the government does risk mitigation and helps to accelerate the renewable energy transition by subsidising heavily on the R&D phase. The Dutch government takes on the role of a market-shaping, rather than merely a market-fixing, as evidenced by their control over which technologies receive substantial subsidies. Furthermore, consistent with the literature review and validated by the interviews, the primary challenge for the Netherlands in implementing renewable technologies pertains to the commercialization phase. This phase, characterized by high-risk projects with inconsistent cash flow, simultaneously demands substantial capital investment. Financial stakeholders identify this as the Achilles heel in climate
change mitigation efforts.

Considering this vulnerability, a possible policy implementation might involve the government to alleviate the risks associated with the commercialization phase, attracting investors who are less inclined to risk, like pension funds, who possess significant capital. This could be achieved by assuring these investors that if they begin to invest in more high-risk projects, they would receive a portion of their investment back in the event of project failure, acting as a guarantee.