Barriers, uncertainty, and discount-rate sensitivity in renewable energy investment decisions

The transition to low-carbon electricity systems requires a substantial expansion of renewable generation capacity. From an investor's perspective, renewable energy projects are exposed to technological, administrative, social, market-related, and financial barriers that can reduce expected cash flows, increase the cost of capital, and thereby lower the Net Present Value (NPV) of investment projects. This narrative review develops an integrative, NPV-based synthesis that maps key categories of barriers and uncertainties onto the relevant valuation channels: initial investment costs, expected revenues, operating costs, project development risks, and the discount rate. The analysis compares these channels across renewable and fossil-fuel generation technologies. It shows that renewable technologies are particularly sensitive to revenue uncertainty and changes in the discount rate, owing to their capital intensity, low direct variable costs, and frequently project-based financing structures. The comparison likewise accounts for fossil-fuel-specific risks, including fuel price volatility, carbon price uncertainty, regulatory transition risk, and stranded-asset exposure. The empirical illustrations draw on Germany and the European electricity market, while international findings serve to contextualize differing institutional and financial frameworks. Policy implications are derived for permitting reform, revenue-stabilizing contracts, risk-sharing instruments, and measures to promote local acceptance.