Financing Energy Transition with Real Estate Wealth

Jussi Vimpari

doi:10.3390/en13174289

Abstract

Transition to a low carbon energy system requires extensive private investment and novel financing instruments. Corporate power purchase agreements (PPAs) have been proven effective in increasing renewables financing. The challenge is to scale this corporate model to smaller energy consumers that form a significant part of the global total energy demand and carbon dioxide emissions. This paper examines collateral strength and global potential of the real estate sector as an offtaker for PPAs. The strength is evaluated by constructing a detailed energy and economic model for 90,000 buildings in the Helsinki Metropolitan Area (HMA), Finland. The global potential is evaluated by creating country-level profiles with global data of interest rates, energy consumption, and energy costs. The results suggest that real estate is a strong offtaker as the HMA’s value of real estate collateral compared to required wind power capital expenditures (that could cover electricity demand of the buildings) is approximately 100:1, and for cash flows, the ratio is 70:1 between gross rents and PPA costs. Analysis of global data suggests that the majority of buildings’ energy consumption in OECD countries as well as a large part of China’s energy consumption could fall into low access finance under the presented concept.

Highlights

A recent study estimated that a 100% renewable energy system requires cumulative investments of 67 trillion EUR by 2050 [1]
Aggregated energy consumption of all buildings generated by the energy model was compared Aggregated energy consumption of all buildings generated by the energy model was compared to Helen Ltd.’s actual production numbers for the year of 2019 [33]
The challenge is to scale this corporate model to smaller energy consumers that form a significant part of the global total energy demand and carbon dioxide emissions

Summary

Introduction

A recent study estimated that a 100% renewable energy system requires cumulative investments of 67 trillion EUR by 2050 [1] As these kinds of investment volumes cannot be reached without private capital, policy actions have been called to decrease the cost of financing for renewable investments [2]. To increase the attractiveness of renewables, policies such as feed-in-tariffs, tax exemptions, and investment subsidies have either focused on decreasing initial capital expenditure or guaranteeing a price for generated energy. As these governmental policies are being terminated, power purchase agreements (PPAs) between private parties have gained a major role in further deployment of renewable energy.

Objectives

Methods

Results

Conclusion