Publication

ESG Economist - Transition check: are renewables in crisis?

Macro economyGlobalClimate economicsEnergy transitionClimate policy

Larissa de Barros Fritz

Fixed Income Strategist (Credit)

Moutaz Altaghlibi

Senior Energy Economist

The energy transition is an economy wide process where a development in one part affects, directly or indirectly, other parts. Bottlenecks or costs challenges could harm an effective energy transition. The effect of today’s bottlenecks on the transition, such as the limited grid capacity, is magnified because of the mismatch in the timeframe for deploying grid extensions versus what is needed for electrification or renewable deployments.

Full report (p.15)

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  • The tight labour market for energy transition occupations and the resulting lack of personnel to undertake the necessary work is also an additional bottleneck in the industry

  • Vulnerability to supply chain disruptions, inflationary pressures, rising financing costs and higher raw material costs are some of the other factors deteriorating the business case for renewables

  • The government also plays an important role in keeping these investments financially viable: When these do not materialize as expected, such as with the tax credits in the US, this serves as a blow to the industry as a whole

  • At the same time, governments also need to meet public interests, resulting in auction prices still remaining relatively high (and/or maximum allowed prices low) as they try to push for lower energy prices

  • These challenges also have potential spill over effects: The impact of limited infrastructural capacity does not only affect the transition domestically, but it could limit the transition across borders

  • Hence, managing the speed of the transition across different channels is crucial for avoiding unnecessary delays or weakening the incentives to invest in clean technologies

  • In this piece, we also try to quantify all these challenges and evaluate how they impact renewable energy developer’s returns.

  • Overall, our calculations show that the current macro- and microeconomic environment does not yield sufficient returns in order for these projects to be viable from an investment point of view…

  • …Ultimately meaning that the renewable energy industry is in crisis