While Berlin debates capacity markets and new grid infrastructure, local players like those in the southern city of Freiburg continue to make Germany’s energy transition – or Energiewende – happen. Local financial institutions play a crucial role in this. They operate within national level incentive systems but unleash potentials far beyond the mere provision of capital. According to Sebastian Philipps, local German stakeholders can offer climate finance cases that deserve a closer look, also from an international perspective. Should Germany’s national decision makers thus pay closer attention to local developments if they want to keep the Energiewende going?

The continued existence of locally rooted saving banks and credit unions was crucial in financing the decentralized Energiewende in Germany. (photo by bjs, CC BY-SA 3.0)

Local forces shape a big part of the Energiewende

Today, roughly 50 per cent of Germany’s renewable capacity is owned by local energy providers, cooperatives or just ordinary citizens. The finance behind this has come from local savings and cooperative banks or privately established cooperatives, according to Heinrich Degenhart, professor for finance and banking at the University of Lueneburg.

Local savings banks do not only offer credit but also support the coordination of local stakeholders from administration, local businesses and civil society. Many rely on a central institution for specific expertise but some, such as the Sparkasse Freiburg-Noerdlicher Breisgau, now offer in-house renewable energy financing in response to growing local demand. The acting board member of Sparkasse Freiburg, Ingmar Roth reports that his savings bank even sets up and manages consumer-financed renewable energy cooperatives in the region. His bank, together with Freiburg’s municipal waste company and the local utility have established a combined solar and biogas generator to be integrated into the city’s material flow management and local energy system.

Local finance addresses major barriers to the energy transition

At the same time, private project developers appreciate the work of local financing institutions. Klaus Schulze Langenhorst, CEO of the developer SL Naturenergie, pointed out that local banks often assume the role of facilitators. Since they hold close ties with local politicians – who often form part of their executive boards – as well as with local craftsmen, organised interest groups and ordinary citizens, they serve as important players at addressing major barriers to lacking stakeholder coordination in the Energiewende. Bigger banks may offer cheaper money but they will usually find it harder to provide such important tacit values.

Linking back to national frameworks

In this light, what can national-level decision makers do to supports local investments? First, new German and European banking regulation needs to accommodate central institutional protection schemes, which the networks formed by Germany’s local banks use to preserve their members from insolvency. Second, local banks need these central institutions to also support them with the technical handling of clean energy projects. Third – and by far most important for local finance – national policy frameworks need to remain stable, transparent and reliable in the long run. Without such a straightforward outlook the German Energiewende will not only lose local financing volume but also lack vital bonds with local administrative, societal and economic forces.

This report is based on a VfU UNEP FI Roundtable on 18 November which included a discussion on the lessons learned in the field of financing the local energy transition. The author would like to thank the panellists Ingmar Roth (acting board member, Sparkasse Freiburg-Noerdlicher Breisgau), Michael Broglin (CEO, Municipal Waste Compay Freiburg), Klaus Schulze Langenhorst (Founder and CEO, SL Naturenergie), and Prof Dr Heinrich Degenhart (Chair for banking and finance, University of Lueneburg) for the fruitful exchange that inspired this article.

Sebastian Philipps is a project manager at the Collaborating Centre on Sustainable Consumption and Production (CSCP) where linking conventional finance with sustainability is one of his focal areas. From January until May 2014 he works as a Carlo-Schmid Fellow at the Asian Development Bank’s GMS-EOC in Bangkok.