The final paper of my dissertation has just been accepted for publication:
This paper analyses the field of innovation studies regarding barriers to low-carbon innovation and consequences for finance (investment and divestment) and contributes to a more holistic understanding of the underlying mechanisms. A combination of technological barriers combined with economic barriers, institutional and political barriers contribute to sub-optimal low-carbon investment all along the innovation cycle. Policy makers need to take a systemic approach to enable the redirection of diverse private financial sources. Instruments range from cutting ‘dirty’ (R&D) subsidies and support for clean technology innovation and diffusion, levelling the institutional playing field and making risks of high-carbon and low-carbon technologies transparent to providing a consistent but adaptive long-term transition strategy. This would allow financiers to gradually shift their investments away from high-carbon mainstream markets and scale low-carbon technology niche-markets. However financiers also need to sharpen their competencies with regard to new clean technologies and markets.
Read the open access paper here
Finally published: Our work on financing cleantech innovation through VC/PE.
In recent years, scholarly interest in financing for innovation has grown, particularly for mitigating climate change. However, extant literature has neglected the interaction of actors along the equity financing value chain, and the indirect effects of innovation and financial policy on the supply and demand of private equity (PE) and venture capital (VC). In this paper, we emphasize the importance of these understudied aspects through a comparative case study of equity finance for cleantech in the United States and Germany. We find that systemic interdependencies between institutional investors, VC/PE and policy makers influence the conditions for innovation – the ‘finance-innovation-policy nexus’. Adverse effects of policies affecting financial markets, in particular institutional investors, have to be taken into account to effectively mobilize private investments for (cleantech) innovation.
Download the preprint here
Access the postprint here
Energy efficiency retrofits are often impeded by high perceived investment risks, long payback periods and a lack of skills. At the municipal level these issues are particularly pronounced as procuring, implementing, and managing retrofits can exceed existing municipal governance capacities. The diffusion of municipal LED street lighting as a replacement for conventional lighting serves as an example. This paper argues that technological (e.g. complexity and maturity), economic (e.g. selling services vs. products and financing costs), institutional (e.g. property situation and contracts) and competency barriers to retrofitting (e.g. lack of measurement capacity and qualified facilitators) translate into transaction costs. We develop a taxonomy of appropriate modes of municipal retrofitting governance based on transaction costs economics. The findings indicate that more market-based solutions, energy performance contracts in particular, can facilitate the procurement of innovative energy efficiency retrofitting solutions and associated investments among municipalities if neutral tenders, open-book accounting, municipal ownership and intermediary organisations allow municipalities to choose appropriate governance structures for particular technologies and retrofits.
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New working paper based on my PhD research published:
This paper analyses the field of innovation studies regarding barriers to low-carbon innovation and consequences for finance. It attempts to integrate previously separated literatures, bridge the gap between abstract failures and tangible barriers and add a temporal perspective to allow for more differentiated policy responses. Among the most salient problems for the commercialisation and diffusion of clean technologies, scholars have highlighted the financing environment. A complex set of barriers therefore revolves around the question of how to finance companies, projects and infrastructure based on low-carbon innovation. The paper contributes to a holistic understanding of the underlying mechanisms. A combination of technological barriers combined with economic barriers, institutional and political barriers contribute to thin financial market for low-carbon innovation all along the innovation cycle. Policy makers can chose from a variety of measures address these barriers and mobilise private finance. Avenues for future research relating to financing low-carbon innovation and corresponding policies are depicted.
Municipalities aiming at mitigating climate change by implementing new energy efficiency technologies face budgetary and capacity constraints. Outsourcing through energy service contracting could provide a solution. This paper reports results from a survey of 1298 municipalities concerning barriers to retrofitting public street lighting and the possible role of energy service contracting to overcome these barriers. Using a logistic regression analysis, the authors investigate determinants of opting for energy service contracts in the specific context of LED retrofits. Results point to an advantage of outsourcing in a financially and capacity-constrained environment, which corresponds with the main reasons for engaging in contracting: minimising investments and financial risks. However, municipalities often do not fully grasp the risks associated with retrofitting especially using a novel technology such as LED. In relation to that they underestimate the risk reduction potential of energy performance contracts (EPC). Previous experience with outsourcing increases the probability to engage in servitization although certain existing partnerships, particularly with utilities, prevent municipalities from considering energy performance contracts. Interestingly, engaging an energy consultant has a negative propensity to use energy service contracts, while pre-negotiated standardised contracts for energy performance contracts have a positive influence.
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Joint work with a colleague from Wageningen University online:
This research article explores the role of institutional innovation intermediaries in accelerating the commercialisation of (clean) technologies. Drawing on the finance and innovation intermediaries literatures, we show that financial barriers to eco-innovation can be partly overcome by particular functions of institutional innovation intermediaries; this in turn mobilises private finance along the innovation process. Therefore, we empirically evaluate the roles and instruments of institutional innovation intermediaries (innovation intermediation, policy support, public–private cooperation, financial instruments). Our contribution intersects both the finance and the innovation systems literature by exploring the finance mobilisation functions of institutional innovation intermediaries to address barriers to eco-innovation along the innovation process.
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First paper published:
This paper examines the impact of public policy measures on renewable energy (RE) investments in electricity-generating capacity made by institutional investors. Using a novel combination of datasets and a longitudinal research design, we investigate the influence of different policy measures in a sample of OECD countries to suggest an effective policy mix which could tackle failures in the market for clean energy. The results call for technology-specific policies which take into account actual market conditions and technology maturity. To improve the conditions for institutional investments, advisable policy instruments include economic and fiscal incentives such as feed-in tariffs (FIT), especially for less mature technologies. Additionally, market-based instruments such as greenhouse gas (GHG) emission trading systems for mature technologies should be included. These policy measures directly impact the risk and return structure of RE projects. Supplementing these with regulatory measures such as codes and standards (e.g. RPS) and long-term strategic planning could further strengthen the context for RE investments.
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After almost one year of hard work we published final project report of our project Climate Change, Financial Markets and Innovation (CFI).