Infrastructure fund as an alternative driver in the implementation of green energy policy in European countries

Abstract

The growing demand for electricity increases investments in green energy infrastructure worldwide, posing a challenge to the budgets of less wealthy countries. So far, the search for a solution has not included infrastructure funds (IFs) as alternative drivers for financing energy infrastructure. The study aims to characterize investment in energy infrastructure in Europe made by IFs. The paper's novelty is to begin the discussion and research on IF's investments in energy infrastructure. So far, there is little or no literature nor analysis available worldwide. The research examines existing data (desk research). Data from the Preqin database on all 549 IFs investing in energy infrastructure in Europe was analyzed. Thus, the research sample covered the entire population, and so the study's conclusions can be generalized to the entire population. The findings show that IFs effectively implement the green energy policy, hedge various investment risk areas, and relieve the government budget. Moreover, the characteristics of IFs that invest in energy infrastructure indicate a transition toward investments in renewable energy projects. IFs investments in renewable energy infrastructure are made in developed countries with stable economies. Thus, there are fewer IFs energy investments in Eastern Europe. However, the profitability of IFs focused on green energy infrastructure in Eastern Europe is higher than in Western and Central Europe, indicating a significant potential development in this region. It is because Eastern European countries are less politically and economically mature; their laws, regulations, and rules are often revised, which creates unpredictable conditions that might discourage potential investors. At the same time, IFs' risk mitigation strategy (hedging geographical, political, and legal risks) pushes their investments away from Eastern Europe. In conclusion, the paper may increase decision-makers' awareness of employing IFs to implement the green energy policy and encourage legislators to create appropriate and stable conditions for enabling energy investments by vehicles such as IFs in less affluent Eastern European countries.