Energy transition and renewables financing: capital at the core of decarbonisation

April 2026  |  SPECIAL REPORT: INFRASTRUCTURE & PROJECT FINANCE

Financier Worldwide Magazine

April 2026 Issue

The global energy transition has entered a new phase. What started as a niche policy area has evolved into a central pillar of industrial strategy, capital markets and geopolitical positioning.

Annual investment in renewables, grids and flexibility technologies has reached unprecedented levels and it is nowhere near coming to an end. According to the International Energy Agency, global clean energy investment surpassed $1.7 trillion in 2023 and continues to exceed investment in fossil fuels, reflecting a fundamental change in the allocation of capital. However, despite these record capital flows, the gap between ambition and implementation remains wide.

The decisive question is no longer whether capital is available in principle, but rather, under what conditions can it be mobilised on the required scale, at the required speed and at the required cost?

This article examines the drivers of investor confidence, the structural bottlenecks that will determine whether the coming years will be a period of breakthrough or stagnation, and the evolving financing and regulatory landscape in the European Union (EU), Germany and the UK.

Regulatory stability unlocks capital

Investor confidence in solar, wind and battery storage projects is closely tied to the credibility and predictability of policy frameworks. In recent years, large-scale programmes such as the EU’s REPowerEU initiative and the revised Renewable Energy Directive, known as RED III, have sent a clear message that decarbonisation is a long term structural transformation, not a temporary political project.

Where long-term targets are reflected in binding legislation supported by carbon pricing and auction mechanisms, capital tends to flow. However, changes in support schemes, delays in permitting process reforms or retroactive interventions can quickly erode confidence.

Offshore wind auctions in several European countries have highlighted the sensitivity of project pipelines to cost assumptions and regulatory clarity. Carbon pricing, tax credits and green bond standards are effective instruments, but only if they remain credible throughout the entire project lifecycle, which is often 20 to 30 years. Investors are scrutinising ‘change of law’ provisions, stability guarantees and the enforceability of contracts. This makes policy volatility a material financial risk.

Intermittency, flexibility and the value of integration

As the use of renewable energy increases, ensuring system stability becomes a key investment consideration. Investors now consider not only generation costs, but also the value of flexibility.

Hybrid projects that combine wind or solar power with storage systems can improve predictability and reduce the risk of curtailment. Accurate forecasting of price spreads and ancillary service markets is essential for revenue models.

Key metrics include the internal rate of return under volatility scenarios, storage degradation rates and sensitivity to regulatory changes in capacity remuneration schemes. Grid expansion and digitalisation are equally critical. Without modernised networks and smarter dispatch systems, additional renewable capacity could result in diminishing marginal returns.

Closing the financing gap as the systemic challenge

Despite record levels of investment, the financing gap continues to widen. In several European markets, actual annual investment remains far below identified needs. Over the next decade, external financing requirements will total hundreds of billions of euros, predominantly in debt but also with substantial equity components.

Rising interest rates have reduced returns and increased debt servicing costs. Banks have become more cautious, particularly with regard to capital-intensive projects involving long construction periods, innovative technologies and high capital risks for investors.

This implies a structural shift: the energy transition cannot be financed by energy companies alone. Institutional investors, insurers, pension funds, sovereign wealth funds and private households must therefore play a larger role.

Public policy regarding renewable energy resources and energy transition must therefore focus on: (i) stable, long term regulatory frameworks; (ii) accelerated permitting and grid reforms; (iii) expanded guarantee schemes and public co-investment; (iv) incentives for equity mobilisation, including tax measures; (v) broader citizen participation to enhance acceptance; and (vi) ambition colliding with capital constraints.

The EU is aiming for climate neutrality by 2050, and has developed an extensive funding structure to support this goal. The Recovery and Resilience Facility allocates funding for energy efficiency and clean technologies. Cohesion Funds, the Modernisation Fund and the InvestEU programme supplement national instruments and seek to leverage private investment.

The EU’s approach is therefore a combination of grants, loans and guarantees. Blended finance vehicles, in which public funds take the first loss position, have proven effective in mobilising private investors for infrastructure and innovation projects, as have green bonds and sustainability-linked loans, which have become conventional funding instruments.

However, the required investment remains enormous. Estimates of the cost of transforming the energy system in Germany alone range from several hundred billion euros by 2030 to over one trillion euros by 2045, with grid expansion accounting for a significant proportion of this. Actual annual investments across the EU still fall short of what is required to meet the targets for 2030 and 2050.

In Europe, three structural challenges stand out. First, permitting and grid bottlenecks. Lengthy approval procedures and congested connection queues delay projects and increase financing costs. Capital that is technically available cannot be deployed efficiently.

Second, equity constraints. Stricter banking regulation and minimum equity requirements – often around 25 percent – limit the leverage capacity of utilities and municipal companies. Small and medium-sized enterprises, in particular, struggle to raise sufficient equity.

And third, regulatory uncertainty. Frequent policy changes, such as short-term adjustments to support schemes, remuneration rules or ad hoc interventions like windfall taxes, create significant planning risks. Stable, long term regulatory frameworks are essential. We need a shared commitment – across political orientations and societal groups – to the goal of climate neutrality, and then follow a consistent, long‑term pathway without continually questioning, reshaping or reversing it.

Overall, Europe does not primarily suffer from a lack of liquidity, but from insufficient project readiness and risk allocation mechanisms.

Germany’s net-zero pathway blocked by regulatory fragmentation

Germany’s energy transition is based on a dense legal framework – its core challenge remains the pace of expansion. Planning and approval procedures remain complex and time consuming, for example for onshore wind energy projects.

In addition, the announced Renewable Energy Act reform and the planned introduction of ‘contracts for difference’ (CfD) from 2027 onwards create further uncertainty. Investment decisions will continue to carry elevated risks as long as details regarding their specific design remain unclear.

At the same time, the expansion of transmission and distribution grids is falling behind schedule. These networks must be expanded and digitalised. The slow rollout of smart meters and the lack of sufficient flexibility mechanisms hinder the integration of volatile electricity generation from wind and solar power. Storage infrastructure and system-supportive incentives, such as dynamic grid tariffs or flexibility markets, are still underdeveloped.

Meanwhile, the financial requirements for grid expansion, battery storage and industrial transformation are rising substantially, exceeding the investment capacity of individual actors. External investors are also acting cautiously due to significant technological and profitability risks, as well as the constantly evolving regulatory framework. The lack of planning certainty makes it difficult to forecast returns and slows urgently needed investments.

Policymakers and the Federal Network Agency (Bundesnetzagentur), the regulatory authority responsible, must ensure a stable regulatory environment. Following a 2021 ruling by the European Court of Justice, the agency was granted expanded regulatory powers and greater discretion. However, it is not currently making sufficient use of these powers to attract investors and provide the necessary level of certainty.

To achieve its ambitious climate targets – particularly carbon neutrality by 2045 – Germany requires accelerated permitting procedures, substantial investment in grids and battery storage, and clear, investor-friendly market mechanisms and incentives, including tax relief combined with targeted public subsidies.

In a nutshell, the energy transition is more an issue of implementation than knowledge. The key to success will be the consistent refinement of the regulatory framework to ensure investment security and accelerate the pace of the energy transition.

The UK’s high ambition meets structural friction

The UK has legally committed to achieving net-zero emissions by 2050, setting an intermediate target of a largely decarbonised power sector by 2030, with at least 95 percent of energy produced using renewable resources and nuclear power.

The government’s strategy – ‘Clean Power 2030 Action Plan: A new era of clean electricity’ – includes a significant expansion of offshore wind (with an additional capacity of over 40GW), as well as substantial additions to onshore wind and solar power. It also involves reducing gas-fired generation to a backup role.

The UK’s CfD scheme is widely regarded as a global benchmark thanks to its guaranteed strike price over 15 years, which reduces revenue risk and lowers financing costs. However, discussions about market reform under the Review of Electricity Market Arrangements are creating uncertainty about future price formation and locational signals.

Despite strong progress – renewables already account for more than half of electricity generation – implementation risks are mounting, as outlined below.

Grid capacity and connection queues. The ‘first come, first served’ model has led to extensive backlogs, with some projects facing connection dates deep into the next decade.

Transmission charges. Regional disparities in network charges affect project economics and complicate investment decisions.

Reliance on emerging technologies. Carbon capture, hydrogen and long-duration storage are politically prioritised but still carry significant technological and commercial risks.

Investment volume. Estimates suggest annual investment needs of £40-60bn for generation and networks until 2030, largely from private sources.

Public instruments such as Great British Energy and the National Wealth Fund aim to derisk strategic projects. Yet the UK faces a delicate balancing act: maintaining fiscal discipline while providing sufficient certainty and support to crowd in private capital.

The road ahead: consolidation or acceleration?

Over the next few years, global investment in established technologies such as solar power, onshore wind and batteries is expected to remain strong, albeit with more moderate growth, provided that the macroeconomic situation stabilises. Local manufacturing and supply chains will continue to grow as countries seek to reduce their geopolitical dependencies.

However, reform will be the decisive factor. Without faster permitting processes, improved grid integration and a coherent policy mix, capital will not flow at the required pace.

Ultimately, the energy transition is a challenge of allocating capital under conditions of uncertainty. Technology costs are not the primary barrier. The critical variables are regulatory credibility, institutional capacity, and the ability to align public and private balance sheets.

If these elements converge, the current decade could see the structural breakthrough of a climate-neutral energy system. If they do not, however, capital may remain abundant yet be deployed insufficiently where it matters most.

 

Dr Markus Böhme and Dr Tillmann Pfeifer are partners at TaylorWessing. Mr Böhme can be contacted on +49 211 8387 124 or by email: m.boehme@taylorwessing.com. Mr Pfeifer can be contacted on +49 40 36803 529 or by email: t.pfeifer@taylorwessing.com.

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Markus Böhme and Tillmann Pfeifer

TaylorWessing

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