Renewable energy Your investment in renewable energy: 7 valuable market insights from our experts

The market for renewable energy is booming. Renewables have now been firmly established on the market for a few years, and in 2023 they accounted for more than half of German electricity consumption for the first time. And government investments in renewable energy also exceeded fossil fuel spending for the first time last year.¹

This dynamic is also reflected in the financial market: Demand is rising and the supply of investments in renewable energies is following suit. However, this is precisely when you need to look closely to identify real opportunities, but also risks. After all, a booming market also overheats quickly.

That’s why our experts give you an insight into 7 exclusive insights that will help you gain a better insight into the market for renewable energy investments.

For a few years, the market for renewable energies has been able to develop virtually undisturbed: Subsidies were high, demand high, financing costs low.

But the market situation has now changed as a result of the interest rate hikes: On the one hand, investment companies benefit because rising interest rates also lead to rising yields for them. On the other hand, this increases financing costs for project developers.

In addition, the fact that the expansion of renewable energies on the German market is being driven so strongly also intensifies competition. This also leads to higher project and area costs.

The situation on the market is therefore more promising, but also somewhat more tense than it was a few years ago. For project developments in particular, you should therefore primarily rely on established companies that have sufficient experience and can demonstrate a corresponding track record. 

Power Purchase Agreements (PPAs) are an integral part of the market for renewable energy investments. They ensure that the purchase of sustainably produced electricity is secured in the long term and at a fixed price.

But the market is growing - it is hardly possible to handle all upcoming projects via PPAs. Anyone who wants to survive in the long term cannot therefore rely on PPAs for the long term, no matter how valuable they are. 

This does not mean that secured purchase agreements and prices are a thing of the past. On the contrary, the demand for PPAs is still steadily increasing: According to current forecasts by the German Energy Agency (dena), around 25 percent of German electricity demand could be covered by the PPA market in 2030.²

However, the market is becoming more complex and so are the contract forms. PPAs are still essential, but will be increasingly complemented by further models in the future. For investors who want to purchase electricity from renewable energies or invest in renewable energies in the future, alternative contract models that are emerging on the renewable energy market will therefore also come into question in the future.

Fluctuations in renewable energy output are still one of the most common criticisms. And there’s also something about it, at least to some extent: It’s not always windy or the sun is not always shining. Of course, this also has an impact on the respective energy production.

This is where the principle of hybridization comes into play: By combining different types of renewable energy systems, the fluctuations in output can be balanced and compensated for. This works particularly well for energy types with different generation profiles, such as wind and solar.

However, hybrid models also describe the combination of power generation and power storage. This allows operators to produce and store more electricity in high-power phases and feed it in in weaker-power phases. Such hybrid systems will also increase significantly in the future, as this will further increase grid stability.

Hybrid projects are already gaining momentum in many parts of Europe. The Commerz Real Group is also currently implementing such a project in southern Spain: There, an existing solar farm will be supplemented by an onshore wind farm over the next few years.

In Germany, on the other hand, diversified hybrid projects are currently still associated with higher bureaucratic and legal hurdles. However, it looks like these processes will soon be optimised. The potential of such hybrid projects has long been recognised here as well. For example, the first commercial plants went online in 2023, showing that the potential of the combination has already reached market maturity.⁵

Sustainable electricity can thus be generated more continuously and power fluctuations can be better compensated for. In the next step, this means that electricity is also fed in more reliably. And this also stabilises the cash flows for investors when investing in renewable energies.

The financial market has also been very turbulent in recent (quite crisis-rich) years. In particular, assets from the infrastructure sector have proven to be crisis-resistant investments: Interest rate hikes, inflation and economic uncertainties have had little effect on infrastructure assets compared to other asset classes.

Of course, not all infrastructure assets can be cut through one comb. With smaller assets, for example, the competition from bidders is significantly greater. In many cases, this drives up prices and reduces returns.

Assets that are only in the project development phase are in turn attracting significant returns. However, recognising such opportunities requires a certain level of expertise that not all investors have. Because, as always in construction, something can go wrong and not every project development company implements the project in practice as painted on the paper in advance.

Infrastructure assets with a low risk profile and broad diversification, such as the klimaVest renewable energy fund of the Commerz Real Group, with which private investors can invest in tangible assets from the renewable energy sector, promise the highest crisis resistance:

klimaVest now includes 43 assets⁶ in 5 European countries. Various technologies are used, such as onshore/offshore wind power, photovoltaics or agri-photovoltaics. The fund invests in project developments as well as in systems that have already been built and connected to the electricity grid.

Diversification is being further developed and risk balancing is being taken to the next level.

In the years since its introduction in 2015, the first financial products aimed at long-term investments in the European real economy were launched on the market via the investment vehicle ELTIF (European Long-Term Investment Fund).

The concept was generally well received, but due to the strict conditions and regulations, it was not used as much as originally hoped. It was too inflexible, especially for private investors: The prerequisite was an investment amount of at least EUR 10,000 with a total asset of at least EUR 100,000.

With the ELTIF 2.0 adopted in 2024 January these investment hurdles for retail investors have now been removed. It is now possible to invest in real-economy investment projects such as infrastructure and renewable energies even with lower starting amounts.

First of all, this is good news, especially for the renewable energy sector. After all, in order to achieve climate neutrality in Germany by 2045, around 1.1 trillion euros³ are required according to the current status. State subsidies will not be enough, private funds are needed. And with ELTIFs, investments in renewable energies are already significantly simplified and standardised.

However, investors should keep their eyes open. As a result of the relaxed regulations, ELTIF providers now also have more freedom and opportunities to include new assets in the portfolio that are more risky or less sustainable than expected, for example.

This may reduce transparency for investors and increase investment risk. That’s why it’s important to look closely:

• What assets are invested in?
• Do you trust the supplier?
• What investment strategy does it pursue?
• Which other financial products does he offer or add to the fund?

A little caution will pay off in the long term.