Where does the money come from? Sources of finance for the European energy transition

We analyse supply and demand in major scenarios for the European energy transition until 2050. We then contrast it to the available sources of finance. The good news is that the private money is – in principle – available to finance the investments. The bad news however is that does not (yet) come in the forms and shapes that the European energy sector would need it. Changing the situation requires action from both the private and the public sector in the coming years[1].

We know how much we need

Many studies highlight the large amounts of investment into energy supply and demand that is required. An innovation-led sustainability transition requires both investments in invention and innovation as well as diffusion in a diversified financial system (Polzin et al., 2017). Our review reveals that under the individual investment and lending mandates the money is available. Many of the scenario-based analyses explicitly or implicitly neglect the sources of finance rather focusing on aggregate investment needs. For example McCollum et al. (2018, p. 591) state that ‘[…] given the nature of these models, we expressly address the question of ‘Where are the investment needs?’, not ‘Who pays for them?’’.

The money is available, but…

Our analysis further shows, on the one hand, that the volumes are available in the order of magnitude needed for a successful energy transition, especially when it comes to institutional investors. On the other hand, the numbers also reveal a qualitative mismatch. There is ample capacity to invest in scaling mature technologies, but there are shortages in (upstream) innovation finance, especially research, development and demonstration (RD&D) as well as venture capital and private equity. There the amounts are smaller, but the downstream impacts are not. There is no quantitative issue in freeing up these resources and a little will go a long way in solving the most urgent bottlenecks. However typically the types of finance suitable for funding experimentation are not so easy to mobilize in Europe’s highly institutionalized, bank based and regulated financial sector (Elert et al., 2019).

Who can do what?

It becomes apparent from our review that there is plenty of financing available especially in the later stages of technology lifecycle (see Figure 1) when the risks involved are comparably low. That means even within the current composition of equities, bond and alternative investments, institutional investors could engage in financing large-scale (low-risk) renewable energy projects (Röttgers et al., 2018). An effective reform of regulation and governance to allow these investors to engage more in unlisted long-term equity and debt will make ample funding available to scale the necessary technologies. These could be realised through intermediate channels such as green bonds or YieldCos but institutional investors also heavily engage in public equity markets another underutilized source (La Monaca et al., 2018).

In the earlier stages of the technology lifecycle (with considerable risks) the problem is more urgent. Here only hardly scalable solutions such as small and distributed finance and venture capital are available. These are also able to address significant early stage risks (see Figure 1). Larger ticket sizes and higher risks can only be handled by (state) investment banks and some private equity funds. State investment banks have the potential to scale-up their investments significantly. However, their main role would be in mobilising private finance through co-investments, signalling and education (Geddes et al., 2018).

Figure 1: Sources of finance for the energy transition (framework adapted from (Criscuolo and Menon, 2015))

Unlocking the potential

Our review yields three major ways of unlocking the potential of different sources of finance. First, initiatives promoting socially responsible investments from within the sector (such as pension funds and sovereign wealth funds) that base their investments also on ESG criteria could be scaled up (G20 Green Finance Study Group, 2016) An innovation-led energy transition needs risk-carrying capital in smaller tickets (Owen et al., 2018; Polzin et al., 2018). That needs freeing equity from individual retail investors or institutional funding from pension funds, insurance companies or sovereign wealth funds (Polzin et al., 2017). Finally, a recurring recommendation is the urgent development expertise with technologies, investment vehicles and transition paths.


Criscuolo, C., Menon, C., 2015. Environmental policies and risk finance in the green sector: Cross-country evidence. Energy Policy 83, 38–56. https://doi.org/10.1016/j.enpol.2015.03.023

Elert, N., Henrekson, M., Sanders, M., 2019. Savings, Finance, and Capital for Entrepreneurial Ventures, in: Elert, N., Henrekson, M., Sanders, M. (Eds.), The Entrepreneurial Society: A Reform Strategy for the European Union, International Studies in Entrepreneurship. Springer, Berlin, Heidelberg, pp. 53–72. https://doi.org/10.1007/978-3-662-59586-2_4

G20 Green Finance Study Group, 2016. G20 green finance synthesis report. UNEP Inquiry.

Geddes, A., Schmidt, T.S., Steffen, B., 2018. The multiple roles of state investment banks in low-carbon energy finance: An analysis of Australia, the UK and Germany. Energy Policy 115, 158–170. https://doi.org/10.1016/j.enpol.2018.01.009

La Monaca, S., Assereto, M., Byrne, J., 2018. Clean energy investing in public capital markets: Portfolio benefits of yieldcos. Energy Policy 121, 383–393. https://doi.org/10.1016/j.enpol.2018.06.028

McCollum, D.L., Zhou, W., Bertram, C., Boer, H.-S. de, Bosetti, V., Busch, S., Després, J., Drouet, L., Emmerling, J., Fay, M., Fricko, O., Fujimori, S., Gidden, M., Harmsen, M., Huppmann, D., Iyer, G., Krey, V., Kriegler, E., Nicolas, C., Pachauri, S., Parkinson, S., Poblete-Cazenave, M., Rafaj, P., Rao, N., Rozenberg, J., Schmitz, A., Schoepp, W., Vuuren, D. van, Riahi, K., 2018. Energy investment needs for fulfilling the Paris Agreement and achieving the Sustainable Development Goals. Nature Energy 3, 589–599. https://doi.org/10.1038/s41560-018-0179-z

Owen, R., Brennan, G., Lyon, F., 2018. Enabling investment for the transition to a low carbon economy: government policy to finance early stage green innovation. Current Opinion in Environmental Sustainability, Sustainability governance and transformation 2018 31, 137–145. https://doi.org/10.1016/j.cosust.2018.03.004

Polzin, F., Sanders, M., Stavlöt, U., 2018. Mobilizing Early-Stage Investments for an Innovation-Led Sustainability Transition, in: Designing a Sustainable Financial System, Palgrave Studies in Sustainable Business In Association with Future Earth. Palgrave Macmillan, Cham, pp. 347–381. https://doi.org/10.1007/978-3-319-66387-6_13

Polzin, F., Sanders, M., Täube, F., 2017. A diverse and resilient financial system for investments in the energy transition. Current Opinion in Environmental Sustainability 28, 24–32. https://doi.org/10.1016/j.cosust.2017.07.004

Röttgers, D., Tandon, A., Kaminker, C., 2018. OECD Progress Update on Approaches to Mobilising Institutional Investment for Sustainable Infrastructure. https://doi.org/10.1787/45426991-en


Friedemann Polzin is Assistant Professor of Sustainable Entrepreneurship and Innovation at Utrecht University School of Economics (U.S.E.) and associated researcher at the Sustainable Finance Lab (SFL) | https://www.uu.nl/staff/FHJPolzin | https://twitter.com/friedemann_p

Mark Sanders is Associate Professor Economics of Transition and Sustainability at Utrecht University School of Economics (U.S.E.) and member of the Sustainable Finance Lab (SFL) | https://www.uu.nl/staff/MWJLSanders | https://twitter.com/mwjlsanders

[1] Polzin, F., Sanders, M., 2019. How to fill the ‘financing gap’ for the transition to low-carbon energy in Europe? USE Discussion paper series 19-18. Available at: https://www.uu.nl/en/files/rebousewp20191918pdf

Friedemann Polzin

European Alternative Finance Research Conference 2019

The European Alternative Finance Research Conference took place on the 15th of October which was already the 3rd edition of this conference. It convened around 70 researchers, practitioners and policy makers at the Utrecht University who occupied all available seats at the conference venue. That speaks for a growing network around the European Centre for Alternative Finance (ECAF) that addresses relevant topics around access to finance for SMEs the past couple of years.

The keynotes: Equity crowdfunding and alternative finance market development

Our keynote speaker was Armin Schwienbacher from the SKEMA Business School who talked about the topic “Equity Crowdfunding – anything to celebrate? He highlighted the rapid growth of the industry using the French market as an example. While equity crowdfunding has matured, still many challenges (such as the need for a working secondary market) needs to be addressed and platforms need to adjust their business model to remain competitive.

In the afternoon, Tania Ziegler (Cambridge Centre for Alternative Finance, UK) and Rotem Shneor (Agder University, Norway) gave an insight into their work on the alternative finance benchmark report, especially the challenges of collecting and harmonizing the data. Soon this work will be publicly available on a Worldbank website.

Capital raising in ICOs and crowdfunding for creative entrepreneurs

During the individual conference sessions with several different topics took place. In the initial coin offering (ICO) session, participants discussed potential fraud trough this new form of SME financing, as products and services advertised are very uncertain. In parallel participants discussed the success factors of using alternative finance in the cultural and creative sector. Crowdfunding emerged from this sector but the discussion in the past has focused on investment-based crowdfunding in other sectors instead. Scholars however demonstrated that this topic is still relevant.

Crowdfunding institutions and market development

Crowdfunding and alternative finance more broadly do not work without a conducive regulatory and institutional framework, which was discussed in another individual session. A harmonized crowdfunding regulation is underway at the European Union. Another important question was related to the growth potential of the alternative finance market. Scholars demonstrated a forecast model for the UK, one of the most developed markets.

Funding dynamics and relationships with traditional financiers

What is actually happening on crowdfunding platforms? This and related questions were discussed in-depth at an individual session on funding dynamics. Prior investments, other investors and the communication with the fundraiser influence our decision to invest.

Finally alternative finance companies do not operate in the void. They cooperate with existing firm thereby enabling the usage of new types of infrastructure such as Blockchain.

Forging relationships

The unique set-up of the conference, including policy makers e.g. from the European Commission as well as practioners from European organisations enabled fruitful discussion and the development of new relevant research questions and interesting connections.

The Sustainable Finance Lab (SFL) is co-founder of the European Centre for Alternative Finance (ECAF).

Friedemann Polzin



This Community of Practice (COP) — an interdisciplinary open learning space — was different from all other projects I have been doing so far. We didn’t study a specific circular problem this time, but we studied a solution: a platform for circular business networks with the aim to grow the circular economy. This may sound easy, it was far from easy!

In a circular economy, assets are no longer sold. Rather, assets are collectively serviced by circular service (CISE) networks, comprising all stakeholders involved in keeping an asset functioning. This requires unprecedented levels of cooperation and coordination, with high administrative costs and the need for trust and transparency in the network. Redesigning business processes towards cooperation and transparency diametrically opposes the business logic we are used to.

Cooperation and transparency diametrically oppose the business logic we are used to

We found out that the use of distributed ledger technology (DLT) could be useful for our desired outcome of coordinating transactions, the provenance of assets throughout their lifecycle, automatic execution of payments and providing trust in the network. However, (1) if there is no wish for providing services (e.g. repair, upgrades) directly on the asset (rather via an intermediary ) or (2) there is no need for handling many micropayments to be distributed over a network of participants, conventional database technologies might apply.

The starting point of our COP was a Proof-of-Concept (POC) developed by Rabobank, that fully automates the payment administration of assets that are offered in a pay-per-use proposition, such as cars (pay per km driven), and milk robots (pay per litre of milk). This seemed to fit our pilot case study of Bundles very well. Bundles is a circular company that provides its customers with the service of ‘clean laundry’, by providing them a durable washing machine and charging them per washing cycle. Bundles is in need for new financial structures and administrative tools to grow its business.

In addition to its basic functionality of automatically charging end-users for using an asset (e.g. per washing cycle), the COP introduced several other features:

  1. The automatic distribution of the paid use fees to network participants to compensate for servicing the asset. This enables service providers to engage with the assets, without a central party to coordinate;
  2. A transparent ledger containing information regarding revenues that are generated by a specific asset. This enables a clear division of rights and obligations regarding collateral and cashflows;
  3. Micropayments (smaller then €0,01) against low cost. This makes high volumes of transactions with small amounts affordable;
  4. Accessibility for anyone contributing to a circular economy, stimulating circular competition and lower prices;
  5. Community-ownership and maintenance by the CISE network participants. This allows the proceeds to be distributed amongst the CISE network rather than creating rents for the platform;
  6. The ability for all network participants, including end-users, to co-finance assets or innovations. Repayments are based on generated use fees, leading to new types of circular financial products;
  7. A governance structure of the platform in the so-called code of conduct. This covers rules governing: (a) the eligibility of access to the platform, (b) the rights and obligations regarding the management of the platform (and corresponding legal entity), (c) decision-making processes, and (d) constitutional arrangements.

The technical infrastructure we developed is meant for scaling circular initiatives. Commercial benefits should therefore not come from the maintenance of the infrastructure but from the circular business activity that is facilitated by it. It is therefore essential that the CISE Platform is open-source, not-for-profit and community-maintained.

However, a private, permissioned, DLT system was chosen, to fit the experimental phase we are in. Although the platform inherently places incentives for circularity, minimal eligibility criteria needed to be introduced to ensure the circular character of the platform. Also, sub-optimal design choices were necessary to ensure privacy. A roadmap will be developed to work towards an optimal architecture. For the interested reader, choices regarding technical design configurations can be found in the white paper.

A general problem with these types of projects is that they come with high implementation and maintenance costs. Moreover, viability of the project is still uncertain. Additionally, expert knowledge on software architecture is needed to be able to assess the related development risks.

We do believe, however, that such a platform could be transformational to the circular economy, enabling CISE networks in a wide array of sectors. To realize this potential requires tremendous effort, dedication and cooperation. We have taken the first steps, but a long path still lies ahead. The support of many is crucial to its success. We invite anyone that is interested in being part of the circular economy to join our network and engage with us in future developments.

Further reading:

Would like to join or want more information, contact Elisa Achterberg at e.achterberg@uu.nl.

Elisa Achterberg

Central banks ignore climate risks at their peril

A shortened version of this letter was published on the website of the Financial Times.

In the article ‘Sustainable finance: central banks test water on climate risk’ (December 6) Mr Paul Fisher argues that “governments could add climate goals to central banks remits as a secondary objective”. It is important to notice that this has already been done for the European Central Bank (ECB) as the EU Treaty states: “Without prejudice to the objective of price stability, the ESCB shall support the general economic policies” (Treaty on the Functioning of the European Union (TFEU) 2012, Article 127(1)).
According to Article 3(3) of the Treaty on European Union (TEU) these include “sustainable development” and “a high level of protection and improvement of the quality of the environment.” Since the Paris Accord, signed by both the EU and all of its member states, it is undisputed that combating climate change is a priority in these fields.

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Rens van Tilburg

Climate finance: regulation, big business or collaborative action?

If you put five hundred actors from the financial sector in a French palace for three days, will this solve the climate financing gap? I recently spent three days in the Palais Brongniart at the Climate Finance conference to find out. I found three strategies that the financial industry are using to try to upscale climate (and SDG) finance: regulate, find the business case and ‘we have to do it together’.

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Helen Toxopeus

Fintech and the promise of sustainability

Fintech and sustainability are the two major drivers of change in the financial sector. There isn’t a financial institution that’s not involved in it. There isn’t a startup that does not derive its right to exist from it. What is striking about this, however, is that the combination is rare. Fintech is usually primarily a way of organising the existing financial practice more efficiently. But what is the role of fintech in creating a financial sector that includes green and social values?

In 2016, the UN Environmental Programme (UNEP) published a report called Fintech and Sustainable Development. The report presents sustainable development and new (financial) technology as the two ‘strains’ of DNA. They both have the same ‘basic potential as drivers of change and impact’ and are suitable for ‘creating new, sustainable business models’.

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Commonizing our future

Last Tuesday, the knights of the future assembled in the Hall of Knights in The Hague, to co-create, connect and #commonize our future. Inspiring talks were alternated with interdisciplinary working sessions to come up with challenges to address big societal problems using technology (such as Blockchain).

What makes this technological revolution so valuable to me is that it triggers us to fundamentally re-think our current system and our underlying values.

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Elisa Achterberg

Why will we buy ‘light’ rather than lamps in the future?

Perhaps a better question is: “Who will own the light on your bedside table?”

In this lecture at the Dutch University, Elisa Achterberg answers the question “Why will we buy ‘light’ rather than lamps in the future” and talks about her career from econometrician in financial risk management, through permaculture designer, to researcher into the role of the financial system in a circular economy. The revenue model of the linear economy: selling products that are ‘almost broken’ is a thing of the past. In a circular economy, revenue models for the future are developed, in which economic incentives shift to sustainability and cooperation. However, the pressing question that Elisa is currently addressing is how do we ensure that the circular economy is truly a system change and not a business-as-usual situation? Now that the financial world has woken up and is eager to join, it is time to be extra alert. Who is going to make those new circular products and who will take the lead? And who makes sure that the money flows in the right direction? View the lecture here.

Elisa Achterberg

Sustainable finance, all by itself

When we started to work on the ecological part of sustainable finance some five years ago, with our report on the impact of the carbon bubble on the European financial system, this at times could feel quite lonely. It was up to us to push the message with people on the other side of the table, mostly looking highly skeptical, if now outright bored.

Now, returning after a four month sabbatical, I find reports by an FSB taskforce on financial climate disclosure and by the EU expertgroup on sustainable finance. My six wonderful colleagues at the Sustainable Finance Lab are working with leading Dutch financial institutions on finding ways to finance fair and circular smartphones, started two Horizon 2020 programmes on the financing of eco-innovations (INNOPATHS and NATURVATION) and our co-chair gave a presentation on the circular economy in parliament. By invitation of the Dutch central bank financial institutions are making progress in diverse fields as carbon accounting and climate risk assessment, sustainable finance education and impact measurement. The Sustainable Pension Investment Lab has gone live. The movement for now also greening monetary policy is gaining momentum. Just to name some highlights.

So can I go back travelling? Maybe I can, but then again, the issues at stake are just too interesting, and the urgency for change so big, not to want to be involved. How can our quickly increasing insight into the financial risk of climate change, but also biodiversity loss and other ecological issues, be used by financial risk managers and supervisors? And what about the social dimension of sustainability?  What should the sustainable model mandates that the EU expertgroup discussed in its interim report look like? And in what way is the whole phenomenon of purpose driven business relevant to finance?  Questions we will answer in the year ahead.

Rens van Tilburg