European utilities are cutting renewable energy targets as high costs and low energy prices persist

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A number of major European energy companies have scaled back or are reviewing their renewable energy development targets due to high costs and low electricity prices, in a sign of the difficulties in the transition 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 is scaling back its plans, citing high interest rates and lower energy prices.

At the same time, Denmark’s Ørsted – the world’s largest offshore wind developer – has cut its 2030 renewable energy targets by more than 10 GW, enough to potentially power millions of homes, after having to complete two major projects in the US given up due to increasing energy production. cost.

“We see continued growth [of renewables]but at a slower pace,” Birgitte Ringstad Vartdal, CEO 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 networks. It no longer has a target of 80 GW of renewable energy by 2030, but emphasizes its pipeline of 100 GW.

Italian utility Enel announced in November that it would scale back 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 work with partners to continue increasing renewable energy capacity to reach its target of 73 GW by 2026.

“There has been a major reality check around the growth of renewables,” said Norman Valentine, head of renewable energy research at consultancy Wood Mackenzie. “There has been a huge change in the cost environment.”

The picture is not universal: Germany’s RWE significantly increased its target for sustainable energy in November last year, from 50 GW in 2030 to 65 GW.

There is a growing political focus on the need to develop renewable energy sources, with countries agreeing at the COP28 climate summit in November to aim 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 problems for some developers. Raw material costs have also risen, while electricity prices have fallen in some markets. The often slow process of regulatory approval also poses challenges.

Some companies, including Enel, have said they want to invest more in upgrading electricity grids, which will be key in the transition from fossil fuels to clean electricity. Iberdrola plans to spend around 60 percent of its planned €41 billion investment in the electricity grid.

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 project level looks less attractive if the base rate is 5 percent,” he says. “Many utilities also have opportunities to invest in other areas of their operations (such as regulated networks).”

Deepa Venkateswaran, head of utilities at Bernstein, said companies were investing more in networks in expectation of better returns, given their importance to the energy transition.

Iberdrola and French utility Engie also recently reduced or postponed targets for the production of ‘green’ hydrogen – a potential replacement for fossil fuels in several industries that rely heavily on subsidies. Iberdrola said it is “still waiting for funds” for projects.

Despite the current challenges, Statkraft’s Vartdal said she was confident that the economics of projects would improve. RBC’s Ibendhal agreed.

“These things happen in waves – right now we are in a more downward part of the curve, but it will come back,” he said.

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