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A number of major European energy companies have scaled back or are revising their renewable energy targets due to high costs and low electricity prices, signaling the difficulty of moving away from fossil fuels.
Statkraft, Europe’s biggest renewable energy producer, said this month it was revising its annual targets for new renewable power capacity, while Portuguese power company EDP is scaling back its plans, citing high interest rates and lower electricity prices.
Meanwhile, Denmark’s Ørsted – the world’s largest offshore wind developer – has cut its renewable energy targets by more than 10 GW by 2030, enough to potentially power millions of homes, after it was forced to abandon two major projects in the US due to rising costs.
“We are seeing continued growth [of renewables]but at a slower pace,” Birgit Ringstad Vardahl, chief executive of Norwegian state-owned Statkraft, told the Financial Times.
Spanish energy giant Iberdrola said in April it would take a more “selective” approach to renewables and increase its focus on electricity grids. It no longer has a target of 80 GW of renewable energy by 2030, but emphasizes that 100 GW is planned.
Italian utility Enel announced in November that it would cut its investments in renewable energy from 17 billion euros between 2023 and 2025 to 12.1 billion euros between 2024 and 2026. However, the company said it plans to continue to build renewable energy capacity with partners to reach its 73 GW target by 2026.
“The growth of renewables has been seriously reality-checked,” said Norman Valentine, head of renewable energy research at consultancy Wood Mackenzie. “There’s been a huge change in the cost environment.”
The picture is not universal: last November, Germany’s RWE significantly increased its renewable energy target from 50 GW by 2030 to 65 GW.
Political attention is growing on the need to develop renewable energy, and countries agreed at the COP28 climate summit in November to work towards tripling capacity to 11,000 GW by 2030.
However, rising interest rates over the past few years have increased the cost of financing new projects, creating difficulties for some developers. The cost of raw materials also rose, while electricity prices fell in some markets. The often slow regulatory approval process also poses challenges.
Some companies, including Enel, have said they want to invest more in upgrading electricity networks, which will be vital in the transition from fossil fuels to clean electricity. Iberdrola plans to spend around 60 percent of its planned €41 billion investment in the power grid.
Ralf Ibendahl, head of energy transformation in the Emea region at RBC Capital Markets, noted that high interest rates mean that renewable energy developers will have to compete harder for investors.
“The 7-9 per cent return at the project level looks less attractive with base rates of 5 per cent,” he said. “Many utilities also have the ability to invest in other areas of their business (such as regulated networks).”
Deepa Venkateswaran, head of utilities at Bernstein, said companies are investing more in grids in anticipation of higher profits, given their importance to the energy transition.
Iberdrola and French utility Engie have also recently cut or delayed targets for the production of “green” hydrogen, a potential replacement for fossil fuels in several industries that are heavily dependent on subsidies. Iberdrola said it was “still awaiting funding” for the projects.
Despite the current challenges, Statkraft’s Warddal said she is confident that the economics of the projects will improve. RBC’s Ibendhal agreed.
“These things happen in waves – we’re on the more downward side of the curve at the moment, but it will come back,” he said.