Renewables

Rystad Energy: Investments in renewables in Europe set to surpass oil, gas in 2022

wind solar investments oil gas high prices Rystad

Foto: iStock

Published

October 17, 2022

Country

Comments

comments icon

0

Share

Published:

October 17, 2022

Country:

Comments:

comments icon

0

Share

The surge in spot electricity prices in Europe has decreased the payback period for wind and solar projects from 11 years to under a year. Investments in renewables are picking up and this year they could beat the oil and gas sector for the first time.

The utility wind and solar investment narrative is changing as potential payback periods of under a year could start a race to develop renewable energy assets purely based on project economics, according to the research prepared by Rystad Energy.

Returns on solar PV and wind projects have so far been primarily relying on subsidies, for example feed-in tariffs, and the recent commodity and supply chain issues threatened to make things worse. However, Rystad Energy’s analysis demonstrates that current spot prices in Germany, France, Italy, and the United Kingdom would result in paybacks of 12 months or less.

In its research, Rystad Energy used a generic 250-megawatt (MW) solar PV project and modeled it in Germany. With a long-term electricity price of EUR 50 per MWh, the expected payback period is 11 years.

With a long-term electricity price of EUR 50 per MWh, the expected payback period is 11 years

A price of EUR 350 per MWh or above results in a payback period of only one year while a price of approximately EUR 180 per MWh – the European Commission’s proposed price threshold – cuts the payback to five to six years, according to the document.

At EUR 350 per MWh, the payback comes in at up to 12 months in France, Italy, and the UK. With relatively low operating costs, returns would remain robust even if the long-term power prices were to drop significantly.

However, while it can also take years to clear regulatory and other hurdles before construction can begin on a renewables project, if one believes high prices are here to stay, developers and financiers alike should be trying to get projects up and running as quickly as possible and with maximum exposure to wholesale prices – as once the upfront costs are recouped, returns will be very attractive even if prices drop back close to historical levels, said Rystad.

Countries strive to source secure and affordable energy

The results also show that capital investments in renewables are set to reach USD 494 billion in 2022, outstripping upstream oil and gas, at USD 446 billion.

More capital is being pumped for the first time into renewables than in upstream oil and gas including brownfield and greenfield but excluding exploration, said Rystad.

According to Michael Sarich, senior vice president at Rystad Energy, capital investments in renewables are set to exceed oil and gas for the first time this year as countries scramble to source secure and affordable energy.

Investments into renewables are likely to increase further moving forward as renewable project payback times shorten to less than a year in some cases, said Sarich.

Comments (0)

Be the first one to comment on this article.

Enter Your Comment
Please wait... Please fill in the required fields. There seems to be an error, please refresh the page and try again. Your comment has been sent.

Related Articles

Serbia drafts just transition action plan public debate

Serbia drafts just transition action plan

30 May 2025 - The Ministry of Mining and Energy has published a draft just transition action plan and launched a public debate

Regional Power Sector Exchange Western Balkans disitribution system operator dso grids ohrid giz

Third Regional Power Sector Exchange in Ohrid: Power grids at core of energy transition

30 May 2025 - The third Regional Power Sector Exchange of the Western Balkans gathered over 80 energy professionals from the Western Balkans

two solar power plants egesa enerji vojvodina

Turkey’s Egesa Enerji to build two solar power plants in Serbia’s Vojvodina province

30 May 2025 - Turkish company Egesa Enerji has launched a project to build two solar power plants in Vojvodina, with a total nominal capacity of 8.6 MW

Green for Growth Fund partnership Swedish International Development Cooperation Agency Sida

Green for Growth Fund launches partnership with Swedish International Development Cooperation Agency

30 May 2025 - GGF and the Swedish International Development Cooperation Agency are expanding green lending in the Western Balkans and the EU's Eastern Neighborhood