The renewables business faces a make-or-break moment

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moment in the sun. Rock-bottom interest rates lowered the cost of clean power, which is expensive to deploy but runs on sun and wind that come free of charge. The price of solar panels and wind turbines fell as technologies matured and manufacturers gained scale.

These developments brought the levelised cost of electricity (LCoE)—which accounts for capital and operating expenditures per unit of energy—for solar, onshore wind and offshore wind down by 87%, 64% and 55%, respectively, between 2010 and 2020 (see chart 1). Clean energy became competitive with dirty alternatives, and was snapped up by big corporate power-users directly from developers. Infrastructure investors such as Brookfield and Macquarie made big renewables bets.

So did some fossil-fuel firms, such as BP. Utilities such as EDP and Iberdrola in Europe and AES and NextEra in America poured money into projects. Average returns on capital put to work by developers rose from 3% in 2015 to 6% in 2019, a similar level to oil-and-gas extraction but with less volatility.

The industry’s prospects looked so bright that in October 2020 the market value of NextEra briefly eclipsed that of ExxonMobil, America’s mightiest oil giant, making it America’s most valuable energy company. Today these prospects look considerably dimmer. Over the past two years the economics of renewables have been hit by rising interest rates, supply-chain snags, permit delays and, increasingly, the protectionist instincts of Western governments.