The emerging funding gap for the European Energy Sector—Will the financial sector deliver?

In the EU policy debate, there is an emerging understanding of the existence of a substantial gap between current investment levels and those required to reach the 2020 energy targets. For energy supply and transmission alone, the gap is estimated to be almost €500 billion. Bridging this funding gap requires the financial sector to supply the capital needed by firms in their entrepreneurial activities. Over the last thirty years, the financial sector has, however, shifted its focus towards speculative and high-risk financial investments with short periods of investment and high returns. It is quite plausible that the ability of the EU to bridge the funding gap and realise the desired process of Schumpeterian “creative destruction” in the energy sector will be constrained by this shift. We conclude that an adequate mobilisation of financial resources may require public investments to be greatly increased and/or a reform of the financial system.

► There is a gap between current investment levels and those required to reach the EU 2020 targets.
► This is partly due to risks associated with investment in new energy technologies.
► Another contributing factor is the business logic of the financial system of today.
► It has shifted its focus towards speculative investment in financial products.
► Public investments may need to be greatly increased and/or the financial system reformed.