Governments backtrack from clean energy projects as costs mount

Subsidies and above-market rates and contracts to fuel the rise of so-called ‘clean’ or ‘renewable’ energy helped wind and solar to become some of the world’s cheapest sources of electricity. However, as costs continue to rise alongside minimal contribution to the energy grid, governments and utility companies are stepping back from commitments that began two decades ago to fight ‘global warming’ and generate jobs.

In Canada, Ontario Premier Doug Ford killed hundreds of contracts for planned wind and solar farms. Premier Ford was elected last year in large part due to the province paying significant, unaffordable prices for electricity. Canada’s most populous province had signed long-term contracts under the previous disastrous Liberal government that had handed wind and solar a premium, in part to create jobs. Within weeks of taking office, Premier Ford began the process of cancelling more than 700 contracts for future renewable projects, estimating it would save the province CAD $790 million.

Bankrupt California power company PG&E will likely renegotiate costly power deals they had signed when prices were three times as expensive as they are now. The rollback has divided both policy makers and the energy industry as some call it a natural evolution, while others argue it will undermine clean energy growth and its becoming a mainstream source of power. Though renewables can now compete against coal and natural gas in limited parts of the world, the risk of contracts getting dropped scares off investors and undermines the economics of capital-intensive projects. Initially, the government’s strategy for renewable energy worked, triggering a rapid rise in the installation of solar arrays and wind turbines and a fall in prices. California began requiring utilities to buy wind and solar power as early as 2002. Some of those early contracts cost three times as much as today’s going rates, and according to Moody’s Investors Service, ditching them could save USD $1.4 billion annually.

Spain has also pulled back on subsidies and ending existing projects. In Spain, a set of financial incentives were offered for clean power, most notably a subsidy called a feed-in tariff that guaranteed a premium price. According to Bloomberg data, by 2008, the country had become Europe’s hottest renewable market, with more than 4 gigawatts of solar and wind power installed that year. However, Spain’s retail electricity prices were not high enough to cover the cost of producing it. This gap between the subsidies and rising fossil fuel prices widened. That “tariff deficit” ballooned amid the 2008 global financial collapse and Spain ended the incentives.