Over the last decade, European renewables investors have learned the hard way that what governments give, mainly in subsidies, can easily be taken away.
Renewables – for the most part solar, onshore and offshore wind – has matured into a sub-sector of the infrastructure asset class in its own right over the past decade. However, as Infrastructure Investor noted in September 2013, renewables in Europe soon became a “victim of its remarkable success”.
The first case of a government turning the tide of support was in Spain, which we called a “textbook example of what not to do” for the private sector. After Spain shot to the top of Europe’s renewables producers with a generous feed-in tariff system, the flood of new energy sources increased the deficit in its electricity budget to €26 billion. Next came a “never-ending string of retroactive measures” which shortchanged the country’s renewables industry.
A string of lawsuits followed, some of which are still playing out today. One of the most high-profile was settled last year, when Antin Infrastructure Partners clawed back €120 million from the Spanish government.
Just two years after the article’s publication, the UK announced its own set of retroactive renewables subsidy cuts. The driving force, much like in Spain, was that politicians saw the price tag for continued renewables growth as too much to bear. But after a few years of stagnant growth, the industry in the UK is on the rise again.
Germany has suffered renewables growing pains over the last 10 years as well. Earlier in the decade, a Moody’s report described these as a “headache for the country’s electricity transmission operators”. The influx of renewables was quickly making the country’s baseload sources of coal and nuclear generation too expensive.
“The increased costs of renewable energy generation are showing up in the energy mix and politicians are showing reluctance to pass them on to consumers,” the report stated. “Whilst we do not think that there is a risk that substantial costs may not be recovered at all, we believe that there is a clear possibility that returns may be deferred to ease any increase in customer bills in the short to medium term.”
The effect European renewables subsidy cuts have had on overall growth in the industry is coming into focus now. According to the International Energy Agency, new net capacity from solar, wind, hydro and bioenergy in 2018 matched 2017’s total at 180GW globally.
Marco van Daele, chief investment officer at Switzerland-based SUSI Partners, told Infrastructure Investor in a recent interview: “I think this is a transition period – which we’ve been experiencing in the past year or two – between a renewable generation-led growth of the sector, which was fuelled for 20 years by subsidies, into unsubsidised projects.”