The climate-neutral transformation is urgently needed - both for climate protection reasons and to strengthen European energy sovereignty. There is an acute need for Germany to invest in energy infrastructure, industrial plants and sustainable technologies. In this report commissioned by EPICO KlimaInnovation and Bellona Deutschland, Markus Demary, Malte Küper and Thilo Schäfer from the German Economic Institute show where there is an acute need for action for the climate transformation and what financing solutions are available for companies.
Mobilizing capital flows for transformation investments
By 2030, more than 400 billion euros will be needed for energy infrastructure alone, while a further 55 billion euros will have to flow into low-emission plants and efficient processes (BDI/BCG/IW, 2024). However, without clear and reliable framework conditions and secure financing, there is a risk of an investment blockade. This would have serious consequences: The competitiveness of existing industry would decline and growth opportunities in forward-looking sectors would remain untapped.
5 Instruments for the efficient and accurate provision of financing
The good news is that the necessary investment capital is available. However, it can only be mobilized if a reliable framework for long-term financing, regulatory stability and targeted incentives is created and the risk-return profiles of transformation projects become attractive for investors.
- Reduce the burden of grid expansion costs: The expansion of electricity grids at all levels is a prerequisite for ensuring that the increasingly decentralized, renewable electricity is efficiently transported to the centers of consumption. At the same time, hydrogen and CO₂ transportation grids are necessary. State subsidies and guarantees should ensure competitive energy prices and make green energy more attractive. A speed of expansion adapted to demand limits the need for subsidies.
- Mobilize capital markets for the transformation: Regional investment platforms should support smaller energy suppliers in bundling, standardizing and brokering projects to investors. These “new intermediaries” enable capacity building for players such as municipal utilities, which are increasingly having to turn to the capital market in order to manage the energy transition. State guarantees can give them access to capital markets via bond issues.
- Improve credit financing and risk hedging: Transformation loans with long terms and public loan guarantees reduce financing risks for companies with high investment requirements. Equity funds can support small and medium-sized enterprises (SMEs) with limited access to equity capital in particular. These instruments close financing gaps, especially for capital-intensive initial investments.
- Use contracts for difference as a transition: Investments in climate-friendly equipment are often more extensive than conventional replacement investments and can result in higher operating costs. Contracts for difference reduce investment risks, accelerate the market introduction of green technologies and secure private financing. In this way, low-emission plants can reach market maturity and bridge the initial competitive gap until the green products themselves are marketable.
- Establish lead markets: Climate-friendly products are often more expensive than conventional alternatives. However, you cannot see this “premium” in the end product. This is why standards must be developed and defined that can also be visible in the supply chain. Public procurement can make a significant contribution to the widespread use of climate-friendly components and establishing them on the market.
