Economist Almas Chukin explained why one should not expect miracles from renewable energy sources and why it’s unwise to rely solely on this resource.

Literally:

The largest players in the renewable energy sector are facing serious problems. Why? Well, there are various explanations, but the main reasons are inflation and interest rates.

Large Investments Are Required

Renewable energy, much like traditional energy, involves high initial costs and long payback periods for projects. Investing hundreds of millions of dollars into a facility and waiting for 10-25 years for returns is the norm.

On the other hand, after the initial investments have been recouped, renewable energy becomes an excellent investment. Wind or solar energy is free, and once the equipment has paid for itself, it’s like making money out of thin air until the equipment breaks down.

Renewable energy has been growing at a tremendous pace worldwide, with some European countries already generating over 50% of their electricity from renewables. However, over the years, there has been an unfounded belief that any project would pay off if you just waited.

This euphoria and the desire to shear the «sheep» that hasn’t grown its wool yet have now led to the moment of reckoning. Two examples.

Learning from Others

The oldest company, Siemens, which was born in the mid-19th century along with the electric power industry, got caught up in the hype and acquired Spain’s Gamesa to expand its portfolio of wind turbines. In a rush, they developed and launched new turbines with capacities of 4 and 5 MW. They sold thousands of units, and suddenly it turned out that there were design flaws: the blades were cracking, and the bearings were failing. Replacing a 60-70 meter blade on a hundred-meter turbine costs millions of dollars. Moreover, everything is becoming more expensive, and customers are reluctant to buy the equipment, fearing its quality and the presence of «Siemens» in 10-20 years to get maintenance and service. In short, «Siemens Energy» turned to the German government for 15 billion euros in state guarantees to avoid bankruptcy.

Danish company «Orsted,» the largest developer of renewable energy: it builds and operates facilities worldwide. «Orsted» was at the peak of glory and success just two years ago, winning major tenders in the US and the UK for offshore wind farm construction, until conditions changed. Today, their shares have fallen fourfold for a simple reason: materials and equipment have become 40% more expensive, money has become 4-5 times more expensive, and that’s it. Halloween replaced Christmas. They told their customers that if electricity prices are not revised, they might abandon the projects.

Against the backdrop of the same euphoria last autumn, solar MWs were signed to be built at slightly below 3 cents per kWh in our country. I have serious doubts that such projects will be completed under current conditions.

In summary, the economy of renewable energy and other energy sources should be built, but one should consider not only the minimum prices but also the real economics of the projects, as in the end, reliability and stability are more important in energy, not illusions.