As the macroeconomic environment shifts from one of low to higher interest rates, Marija Simpraga assesses how this may affect returns for investors in renewable energy projects.
The returns required by investors for their direct investments in renewable energy were declining for the best part of the past decade. A low-inflation, low-interest-rate environment, coupled with increasing awareness of environmental, social and governance (ESG) considerations, has resulted in fierce competition for a limited pool of assets, exerting ever more pressure on return expectations.
As the macroeconomic environment shifts, however, will investor return requirements in renewable assets rise, and where will the corresponding increase in the cost of capital leave European clean energy investments?