Energy transition? Yes please – but not at any price!
Executive Education / 23 January 2023
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Jan G. Andreas ist bekennender Fan der Erneuerbaren Energie und verfolgt den Markt intensiv seit mehr als 15 Jahren als Berater, Entwickler, Finanzierer und Dozent. Aktuell ist er Senior Portfoliomanager bei der KfW Entwicklungsbank und treibt die Energiewende im globalen Süden voran.

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Although I have been involved in the renewable energy industry for over 15 years, seldom have I experienced such a shockingly changeable year as 2022 in terms of its impact on the industry in general. In previous years, the development of renewables was mainly driven by the need to limit climate change. But in 2022, people became clearly – and painfully – aware that renewables also satisfy another key requirement: the need for energy independence.

Given the fact that global emissions are once again rising steeply now that the Covid pandemic is over, plus the justified fear of energy shortages, you would think that the further development of renewables should have become a key priority. But this has simply failed to happen – and there are several reasons for this.

Inflation and rising interest rates have inhibited renewable energy investment

Even the renewable energy sector is unable to avoid the cost increases currently afflicting the entire supply chain. Previously, the cost of energy generation by solar and wind farms showed a steady downward trend, becoming ever more affordable from one year to the next. Now the pendulum is suddenly swinging the other way. For the first time in history, energy generation costs are rising – returning to 2019 levels. Alongside the rising cost of materials, rising interest rates in particular mean that many projects can no longer promise sufficient return on investment, causing investors to defer their commitments.

Repeated calls for tenders

The impact of this trend is all too clear. Previously, tenders for wind and solar projects in Germany were often oversubscribed. But in 2022, tenders increasingly failed to find investors and remained undersubscribed – despite repeated attempts. The current conditions for tenders mean they are very unlikely to stimulate dynamic renewable energy development in Germany. Lawmakers also squandered the opportunity to set up a suitable price framework in the 2023 revision of Germany’s Renewable Energy Sources Act (EEG). We can only hope they recognise this lamentable failure and take suitable, targeted action.

Retroactive interference now happening in Germany, too

As we have already seen from events in Spain, Italy and other European markets, as well as globally, retroactive political interference in renewable energy subsidisation causes huge uncertainty in the investment markets and slows down the sector as a whole. That something like this should happen in Germany was always regarded as a highly unlikely worst-case scenario – and yet now, it has actually come to pass. With this year’s retroactive taxation of renewable energy operators’ “windfall profits”, carried out by levying surcharges on excessive earnings, the government has essentially turned renewables into a scapegoat for the structurally outdated design of the energy market as a whole, whereby the most expensive power plant influences electricity prices across the entire sector. And while it is true that wind and solar farm operators earned good money in 2022, permanent over-subsidisation is not something we need to worry about. Indeed, the debate on the over-subsidisation of renewables was concluded over ten years ago – causing the sector to come to an almost complete standstill from which Germany is only very gradually recovering.

The COP no longer has traction

The international community is also sending out the wrong signals about the need to vigorously develop sources of renewable energy. After the usual prolongation of the 27th Conference of Parties (COP 27) in Egypt, some tough wrangling eventually resulted in the signing of a joint declaration, the “Sharm-el-Sheikh Implementation Plan”. But it contains very few concrete resolutions, deferring a slew of key actions to future COPs. As far as climate protection goals are concerned, it merely represents a (very reluctant) endorsement of the resolutions passed at COP 26 in Glasgow. Any hope that the implementation of these resolutions might be accelerated was dashed, so that more and more people are now questioning the long-term raison d’être of the whole COP concept.

Now the private sector must sort things out

When policies fail, the private sector must step in and show that renewables already represent a cost-effective alternative energy supply. A scheme that has already established itself elsewhere in the world is now making rapid progress in Germany – the sale of electricity from renewables directly to end-consumers via power purchase agreements (PPAs). These allow large industrial consumers to benefit from a reliable energy supply at stable prices, while also proving that renewables are not only cheaper, but also represent more secure sources of energy.

Frankfurt School’s part-time Renewable Energy Finance Professional certification course provides programme participants with an in-depth grounding in this fast-moving market. They learn all about the challenges of developing and evaluating wind and solar projects, and use financial models based on real-world practice to produce financing solutions and explore the legal pitfalls. The certificate shows that course graduates have the foundational knowledge to play an active role in guiding and shaping this key industry of the future.