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A number of major European energy companies have scaled back or are reconsidering their renewable energy development targets due to high costs and low electricity prices – a sign of the difficulties associated with moving away from fossil fuels.
Statkraft, Europe’s largest renewable energy producer, said this month it was reviewing its annual targets for new renewable energy capacity, while Portuguese energy company EDP scaled back its plans, citing high interest rates and lower electricity prices.
At the same time, Denmark’s Ørsted – the world’s largest developer of offshore wind turbines – has cut its 2030 renewable energy targets by more than 10 GW, enough to power potentially millions of homes, after the surge forced it to cut two major ones Abandoning projects in the USA costs.
“We see continued growth [of renewables]but at a slower pace,” Birgitte Ringstad Vartdal, chief executive of Statkraft, which is owned by the Norwegian state, told the Financial Times.
Spanish energy giant Iberdrola said in April it would take a more “selective” approach to renewable energy and increase its focus on power grids. The company no longer has an 80 GW renewable energy target for 2030, but highlights its 100 GW pipeline.
Italian utility Enel announced in November that it would reduce its investments in renewable energy from 17 billion euros between 2023 and 2025 to 12.1 billion euros between 2024 and 2026, reducing it to 73 GW by 2026.
“There has been a big reality check about the growth of renewable energy,” said Norman Valentine, head of renewable energy research at consultancy Wood Mackenzie. “The cost environment has changed enormously.”
The picture is not universal: the German company RWE significantly increased its renewable energy target in November last year, from 50 GW to 65 GW by 2030.
The need to develop renewable energies is increasingly becoming a political focus. At the COP28 climate summit in November, countries agreed to triple capacity to 11,000 GW by 2030.
However, rising interest rates in recent years have driven up the cost of financing new projects, causing difficulties for some developers. Raw material costs have also increased, while electricity prices have fallen in some markets. The often slow process of official approval also creates challenges.
Some companies, including Enel, have said they want to invest more in modernizing power grids, which will be crucial to the transition from fossil fuels to clean electricity. Iberdrola plans to invest around 60 percent of the planned investments of 41 billion euros in the electricity network.
Ralph Ibendhal, head of EMEA energy transition at RBC Capital Markets, noted that high interest rates meant renewable energy developers had to compete harder for investors.
“A return of 7 to 9 percent at the project level seems less attractive when base interest rates are at 5 percent,” he said. “Many utilities also have the opportunity to invest in other areas of their business (e.g. regulated networks) instead.”
Deepa Venkateswaran, head of utilities at Bernstein, said companies are investing more in networks because they expect higher returns, given their importance to the energy transition.
Iberdrola and French utility Engie also recently cut or postponed their targets for the production of “green” hydrogen – a potential replacement for fossil fuels in several industries that relies heavily on subsidies. Iberdrola said it was “still waiting for funds to be made available” for projects.
Despite the current challenges, Statkraft’s Vartdal said she is confident that the economics of the projects will improve. RBC’s Ibendhal agreed.
“These things happen in waves – at the moment we are in more of a downward part of the curve, but it will come back,” he said.