Is the energy transition in trouble?
15 April 2024 - Governments must step up to support clean energy companies facing a number of challenges in today's shifting world order, writes CISL's Katherine Quinn.
After dropping its initial £28bn investment pledge, Labour is back in the green policy game, with Keir Starmer promising that the UK will become a world leader in floating offshore wind. Starmer and shadow climate change secretary Ed Miliband say more offshore wind can support energy security, reduce bills, create jobs and contribute to a more sustainable national grid. What's more, new research today predicts England could produce 13 times more renewable energy than it does now.
Labour will have to fight to get its proposal past political hurdles, but there is a bigger problem: renewables companies across the globe are collapsing.
In February this year, Ørsted – the Danish company behind Yorkshire's giant Hornsea 3 project - announced it was slashing 600 to 800 jobs worldwide. Not only that, but it revised its green power target down from 50GW by 2030, to 25GW to 38GW, and withdrew from markets in Norway, Spain and Portugal. Ørsted was once the darling of global offshore wind, but rising inflation, high interest rates and supply chain disruptions have created challenging conditions within the sector.
In 2023, the company also cancelled two windfarm projects in the US, absorbing multi-billion-dollar fines as a result. The implications for Ørsted's UK commitments remain unclear, but the 2.6GW Hornsea project was set to be a lynchpin in the country's transition to more sustainable energy.
Then there is Swedish multinational giant Vattenfall. The company's famous Boreas windfarm, situated off the coast of Norfolk, was expected to consist of more than 100 turbines and power up to two million homes. However, the project ran into difficulty due to the war in Ukraine, with costs skyrocketing up to 40 per cent due to supply chain and inflationary impacts. Vattenfall stopped working on the project in mid 2023, warning that the UK would struggle to meet its offshore wind targets without improved incentives. German energy giant RWE is now in the process of purchasing Boreas and the linked projects Vanguard West and Vanguard East from Vattenfall.
On the continent, electricity titan Siemens Energy ended up with a €12bn bailout from the German government last November, claiming they had "full order books" but "faulty wind turbines". Siemens blamed its recent multi-billion-Euro takeover by Spanish company Gamesa for the havoc.
In the Southern hemisphere, the ambitious Sun Cable project, which aimed to deliver electricity from solar farms in northern Australia to Southeast Asia, was placed into administration last year. This was due to concerns over viability, ballooning costs, and an apparent personality clash between two billionaire investors. It has now been fully acquired by tech entrepreneur Mike Cannon-Brookes, who plans to reinvigorate the "world-changing" project.
Exasun, a Dutch solar panel manufacturer, and Energetic, an Austrian module manufacturer, both filed for bankruptcy in recent months. And Swiss company Meyer Burger announced plans to shut down its German module plant, one of the largest production sites in Europe. Even in China, giants like Longi Green Energy Technology have been forced to let go of thousands of workers, due to an oversaturated market and plummeting prices.
Despite the many obstacles renewables companies are facing, it is crucial we do not give up hope.
Fortunately, the money isn't drying up. Investment in clean energy has risen by 40 per cent since 2020, according to the International Energy Agency, reaching an estimated $1.8tr in 2023. New grid designs and storage technologies mean clean power is becoming more and more available whenever consumers need it, helping to resolve concerns about intermittency. And the cost of wind and solar is getting cheaper and cheaper.
Between 2010 and 2021, the cost of offshore wind dropped by 60 per cent, onshore wind went down by 68 per cent, and solar panel prices plunged by a whopping 88 per cent. The cost of fossil fuel technologies still depends on the national context, but is increasingly unsupportable – for example, a 2023 report found that 99 per cent of the existing US coal fleet is now more costly to run than renewables. This is without factoring in the downstream costs resulting from greenhouse gas emissions and climate change, which would make fossil fuels phenomenally expensive.
Renewable technology is not the problem, and shouldn't be the scapegoat.
The problem is renewables are getting caught up in supply chain challenges, great power competition, and a beleaguered rules-based order.
The two major powers – China and the US – both have thorough industrial policies which place renewables at their core. While this is a good sign, the competition between them is becoming divisive. An oversupply of Chinese renewables infrastructure, particularly solar panels, has flooded the global market and made it difficult for businesses from other countries to compete. As a result, European green tech companies are leaving the market in droves, heading for the gold rush of tax credits, grants and loans available under US President Biden's Inflation Reduction Act.
In the past, we could have resolved some of these challenges through international laws and non-governmental organisations – but the UN is gridlocked by geopolitical alliances, and the World Trade Organization, particularly the Appellate Body, is in disrepair. We are facing an increasingly uncertain "realpolitik" where the previous rules of economic competition no longer apply. Those who continue to rely upon them – like the UK and the European Union – risk being left behind.
There is no doubt that the growing renewables industry faces challenges in many parts of the world – but the fundamentals point towards the fact that we need a clean energy future. Governments and businesses need to figure out how to operate in this new world order. They must take rapid, ambitious action to tackle climate change and secure energy security and economic opportunity within it.
First published in BusinessGreen