How do we make sustainable energy projects financially viable?

The Dutch industry must rapidly electrify. In addition to direct investments in, among other things, battery technology, Invest-NL is also committed to the financing of sustainable energy projects. On Thursday, 26 October, Minister Jetten informed the House of Representatives about the current state of the Stimulating Sustainable Energy Production and Climate Transition (SDE++) scheme, which provides subsidies to companies and non-profit organisations that generate large-scale renewable energy or reduce CO₂ emissions. The parliamentary letter is also based on a report by Trinomics and Rebel, commissioned by Invest-NL. The published research is part of an ongoing process, and the House of Representatives will be informed about further decisions in spring 2024.

Future of the financing of sustainable energy projects

Currently, a review is underway of the SDE(++) subsidy scheme. Invest-NL has assessed the added value of a corporate Power Purchase Agreement (cPPA) guarantee scheme for the Ministry of Economic Affairs and Climate Policy: an instrument that supports direct purchase and sales agreements between producer and consumer.

A mature cPPA market is crucial for further developing the sector towards a subsidy-free future. These purchase and sales agreements provide energy producers with the necessary price and supply security, enabling them to secure financing for developing new (energy-producing) projects. Additionally, many sectors intend to electrify in the coming years, partly through hydrogen, storage, and other power-to-X projects. This also increasingly requires long-term price and supply security from renewable energy on the demand side, which cPPAs can provide.

Guarantee scheme as a possible solution

Nevertheless, cPPAs are currently being concluded with limitations, mainly due to the credit risk associated with the possibility that consumers may go bankrupt during the contract period. This long-term uncertainty about the creditworthiness of energy-intensive companies creates uncertainty about future cash flows, resulting in financing delays for renewable energy projects based on cPPA contracts. Industrial companies, such as those in Cluster 6, stand to benefit from cPPA contracts for the long-term purchase of renewable energy.

Feasibility study and opportunities for additional measures

The attached report investigates the feasibility of a cost-neutral guarantee scheme for cPPAs, where it has been established that the credit risk can effectively be mitigated with a guarantee fund. In line with the review of the European Electricity Market Design Directive, three cPPA guarantee funds are currently active or in development in Europe.

The report also highlights opportunities for additional measures to stimulate the cPPA market: standardised contracts, matching demand and supply for renewable energy projects, and developing the demand side.

As a National Financing and Development Institution, Invest-NL can play a crucial role in drafting model contracts, stimulating demand, and further researching and implementing a guarantee scheme.