Private finance key to reaching renewable goals

Global additions to renewable energy capacity have accelerated but are still well below the target pledged at last year's UN Cop 28 climate talks to triple renewable capacity by 2030. Europe in particular will need to focus on attracting private finance in order to meet this ambition.

Global renewable capacity additions rose by 64pc on the year to a record 560GW in 2023, according to energy watchdog the IEA. If maintained, this annual pace would be sufficient to reach the targets outlined in 150 individual countries' policies and plans, which add up to 8TW of installed renewable capacity by 2030. But this would still be 30pc short of the Cop 28 tripling pledge, which equates to 11TW by 2030. Challenges to reaching this higher target include lengthy authorisation processes, inadequate government support and financing costs, the IEA says.

Nearly 50 countries are on track to reach or surpass their plans, with China being by far the largest contributor. China installed almost 350GW of renewable capacity in 2023, more than half of the global total. Europe aims to almost double its renewable capacity from 2022 to 1.6TW by 2030 — 20pc of the global 8TW ambition. Germany accounts for almost a quarter of Europe's target, followed by Spain, Italy and France, which together with the UK make up another third.

Europe is the second-highest contributor to global renewable capacity ambitions after China. But whether the EU and the broader region will be able to deliver on Cop 28 pledges will depend on projects' bankability. Streamlined authorisation processes and government subsidies have largely driven faster renewables build-out in Europe, but market-based obstacles remain.

The list of announced and under-development projects in Europe is growing rapidly, with plans for more than 467GW to enter operation by 2030, according to trade group the Energy Industries Council. Combined wind and solar capacity additions totalled 73GW last year, up from around 64GW in 2022. And renewable generation in the EU, including nuclear, reached a record 44pc share of the bloc's electricity production last year.

But higher component costs, financing difficulties and supply chain issues have stopped some projects, with wind assets more affected than solar. Swedish utility Vattenfall last year halted development of the 1.4GW Norfolk Boreas offshore wind farm in the UK, scheduled to enter operation in 2027. Its "locked-in" contract-for-difference revenue no longer reflects changed market conditions, the firm says.

Non-level playing field

The levelised cost of electricity generated by wind and solar power is currently well below that of fossil fuel-fired generation, but high interest rates make financing wind and solar costlier, squeezing profit margins. The global average cost of capital for renewable power firms increased to 7pc of market value in the first quarter, its highest since at least 2018, according to the IEA. Renewable projects are typically more reliant on debt and equity financing than fossil generators because of higher upfront costs, which may strain the build-out going forward.

European day-ahead and intra-day power markets have experienced recurring instances of low or negative prices, making projects less attractive to private investors. The deployment of flexible assets such as battery storage and interconnectors is not keeping pace with renewables build-out, causing wind and solar output to saturate markets during periods of lower demand. The German government said in July that subsidised renewable plants would no longer be supported during periods of negative wholesale power prices from 2025. "A green intermittent electron has no value or little value" without integration with flexible assets such as batteries or gas plants, TotalEnergies chief executive Patrick Pouyanne says.

By Timothy Santonastaso

Renewable capacity additions by region