Barriers on road to green energy growth


Solar panels on the edge of a wind farm in Sprakebuell, Germany. — AP

THE wind gusting across north German farm country brings much to the village of Sprakebuell: fog and rain from the sea, the occasional migrating stork, the faint smell of manure in the newly-fertilised fields.

And perhaps best of all, money – from selling the electricity generated by the wind turbines studding the flat green fields stretching out to the North Sea. A slice of the cash goes to the villagers themselves, with the local buy-in making this windy farming enclave near the border with Denmark a showcase for ways to push ahead with renewable energy projects.

It’s not easy when headwinds from the post-pandemic global economy – including high interest rates and inflation – are holding back often costly investment in wind, solar and other forms of clean power.

That is slowing the growth in renewables needed to fend off climate change, just as it needs to speed up to meet an ambitious goal reached at the UN climate summit to boost clean energy capacity.

An organic market in Sprakebuell. The small grocery store also has an attached cafe. — APAn organic market in Sprakebuell. The small grocery store also has an attached cafe. — AP

But Sprakebuell, a three-street cluster of neat one-storey houses where tractor traffic outnumbers cars, has seen new life and added prosperity thanks to renewable energy. Small as it is, some of the German town’s practices offer lessons that could resonate globally.

The dividends from citizen-owned wind farms don’t make the recipients rich. Instead, the money is a little extra jingle, a financial buffer “that’s very important for us because it gives us a certain freedom,” said Astrid Nissen, 44, who with her husband manages a 150-cow dairy farm on the village’s outskirts.

A biogas plant in front of a wind farm in Sprakebuell, Germany. Sprakebuell is a model village for energy transition with an above-average number of electric cars, a community wind farm and renewable heat from biogas. All houses in the village centre have been connected to the local heating network and all old oil heating systems have been removed. — APA biogas plant in front of a wind farm in Sprakebuell, Germany. Sprakebuell is a model village for energy transition with an above-average number of electric cars, a community wind farm and renewable heat from biogas. All houses in the village centre have been connected to the local heating network and all old oil heating systems have been removed. — AP

Milk prices fluctuate wildly, but the steadier income from the wind farms is “something we can rely on, something we can use to plan”, she said, occasional moos coming from the barn behind her.

The whoosh, whoosh, whoosh from the turbines – inaudible in the village centre but noisy up close – contribute some €400,000 a year in taxes. That paid for a new playground, a bike path and even free piano lessons for Sprakebuell’s children.

When it comes to new green energy projects, global hurdles include higher borrowing costs, high prices and clogged supply chains for wind turbines and blades, and the “not in my backyard” resistance to wind farms.

Juergen Hansen, Mayor of the village of Sprakebuell, stands next to a stone with the name of the municipality in Sprakebuell, Germany, Thursday, March 14, 2024. Sprakebuell is something of a model village for the energy transition - with an above-average number of electric cars, a community wind farm and renewable heat from biogas. All houses in the village center have been connected to the local heating network and all old oil heating systems have been removed. (AP Photo/Frank Molter)Juergen Hansen, Mayor of the village of Sprakebuell, stands next to a stone with the name of the municipality in Sprakebuell, Germany, Thursday, March 14, 2024. Sprakebuell is something of a model village for the energy transition - with an above-average number of electric cars, a community wind farm and renewable heat from biogas. All houses in the village center have been connected to the local heating network and all old oil heating systems have been removed. (AP Photo/Frank Molter)

Interest rate hikes from the US Federal Reserve, the European Central Bank and others have economists at University College London warning of “green collateral damage” and calling high borrowing costs meant to fight inflation “terrible news for the green transition”.

Consultancy Wood Mackenzie found that “clean energy has witnessed one of the toughest years in its short history” with government calls for more generating capacity going unfilled in Germany, Spain, the UK and Italy.

The situation is even more serious for lower-income countries in places like Africa, where borrowing costs for the higher up-front investment needed for renewables were already high and have risen even further.

In Sprakebuell, the number of family farms shrank from 26 in 1960 to three larger ones today, and it was on the verge of being merged with a neighbouring village 30 years ago. These days, it’s home not just to farmers, but people who work a half-hour away in the city of Flensburg.

Sprakebuell’s residents put in the 20% down payment on building a wind farm and local banks lent the remaining 80%. The first wind farm had 24 participants; the latest one had more than 150 as word spread.

Nissen standing next to an electric car in Sprakebuell. She and her husband invested in a wind farm more than 20 years ago and their investment has paid off handsomely. — APNissen standing next to an electric car in Sprakebuell. She and her husband invested in a wind farm more than 20 years ago and their investment has paid off handsomely. — AP

Borrowing costs and subsidies

Nissen and her husband started with an investment of just over €5,000 more than 20 years ago. The dividends helped pay for a new calf stall, a front-end loader to shovel out animal feed and two workers.

“That means we sometimes have a free weekend, sometimes a vacation – and without employees, that’s impossible,” she said.

Not everyone takes part, but all residents see benefits. There’s a shared electric car in the middle of town that anyone can book by smartphone app for €2.50 an hour.

A small grocery store has opened with an attached cafe, and a restaurant serves lunch daily – signs of new purchasing power. Some similar-sized villages in the region have neither.

“Renewable energy projects are visible in the landscape, and for me, it’s very important that local people can identify with these projects,” said Christian Andresen, whose company, Solar-Energie Andresen GmbH, developed the wind farms and solar installations.

Andresen’s projects illustrate factors that can move renewables forward. One is the German government’s guaranteed price for electricity over 20 years, which gives banks confidence they can lend and get paid back.

Another is low interest rate loans from the government development bank, the KfW. But even those rates have risen, from 1% a few years ago to over 5%, Andresen said.

Andresen speaking during a presentation on green energy in Sprakebuell. — APAndresen speaking during a presentation on green energy in Sprakebuell. — AP

High interest rates hold back renewables far more than fossil fuel projects. Most of the cost for renewables is up-front in the price of buying the wind turbines or solar panels, while costs to operate them going forward are negligible – the wind blows and sun shines for free.

That makes the cost of borrowing a much more important factor in whether the project will be profitable.

It’s the other way around with fossil fuels: a natural gas-fired electricity plant is relatively cheaper to build, while the real costs come later in buying the gas.

On top of that is inflation, which has raised the cost of building facilities, and equipment shortages due to jammed supply chains.

Those were some reasons Danish company Orsted cited when it cancelled two large wind installations off New Jersey. Swedish utility Vattenfall also halted an offshore project in the UK.

The S&P Global Clean Energy Index of shares in companies with clean energy-related businesses has fallen 26% over the past year, even as broader market indexes have surged to records.

In the US higher rates have been a “speed bump” for some renewables projects, said David Shepheard, North American energy and utilities partner at global consultancy Baringa.

“The returns are squeezed in the current rate environment” but are brightening, he said, with the Fed expected to cut rates this year.

The overall picture is nuanced, with a slowdown in renewables by oil majors easing supplier logjams, while domestic content requirements for US subsidies increase supply chain delays for some projects.

In sub-Saharan Africa, where half the population lacks access to electricity, renewable projects face even steeper challenges with financing. With lots of sunshine, solar is an obvious option, but Africa’s 1.2 billion people have one-fifth the solar power of cloudy Germany.

Borrowing costs there are far higher than in rich countries, while government subsidies are uncertain because of political upheavals and countries already deep in debt.

In Nigeria, where blackouts are an everyday event for about half of the country’s 213 million people, some 14 solar projects have stalled because the finances don’t add up.

The government has been leery of World Bank credit guarantees that would make the projects bankable, concerned about being required to pay for the power even if the grid can’t deliver it.

“But without that, nobody will develop or finance a project with a government subsidy because it can dry off,” said Edu Okeke, managing director of energy company Azura, a stakeholder in the Nova solar project in Nigeria’s northern Katsina state.

The answer can be to raise the price of electricity – which the German government did last year by 25%. That also helps secure financing. Another is subsidised interest rates or credit guarantees as part of developed countries’ efforts to help poorer nations combat climate change.

And where locals are the owners instead of big energy companies, objections to wind towers’ appearance, shadows or whooshing tend to fade, said Andresen, the wind developer.

“When I have a share in it, it’s a nice noise and a nice view,” he said. — AP

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