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Around the World, Buyer’s Remorse Sets in for Costly Clean Power

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Bloomberg

Two decades ago, governments and utilities around the world began offering above-market rates and contracts to fuel the rise of clean energy, helping wind and solar become some of the cheapest power sources. Now, these pacts are under attack.

In Canada, Ontario Premier Doug Ford killed hundreds of contracts for planned wind and solar farms. Spain pulled back subsidies, yanking the rug from projects already up and running. And in the U.S., bankrupt California power giant PG&E Corp. could soon move to renegotiate costly power deals signed when prices were three times as expensive as they are now.

The rollback has divided both policy makers and the energy industry, with some calling it a natural evolution and others warning that it will undermine clean energy growth just as wind and solar have finally become mainstream sources of power. While renewables can now compete head-to-head against coal and natural gas in some parts of the world, the risk of contracts getting dropped threatens to scare away investors and undermine the economics of capital-intensive projects.

“It sends shudders through the industry,” said Ethan Zindler, head of Americas research for BloombergNEF.

The blowback is, weirdly enough, a sign of renewable power’s success.

Beginning around 2000, governments began establishing incentives for clean power to fight global warming and generate jobs. The strategy worked, triggering a rapid rise in the installation of solar arrays and wind turbines. Prices plunged, falling 84 percent for solar over the last decade and 50 percent for wind, according to BNEF.

A Natural Evolution?

Early contracts — which typically last for two decades — began looking more expensive. It’s a natural progression for an emerging industry, said Nina Eshoo, founder of New York-based energy and infrastructure advisory firm Saltbox Partners.

“It’s an evolution of starting a new technology,” she said. “If more people are not going to pay for the beginning, then it won’t get developed.”

California began requiring utilities to buy wind and solar power as early as 2002. Some of those early contracts cost three times as much as today’s going rates, according to state data. Ditching them could save $1.4 billion annually, according to Moody’s Investors Service.

San Francisco-based utility owner PG&E, which filed for Chapter 11 in January, has asked the judge overseeing the case to rule that it has the right to throw out the deals. Just the prospect of those contracts getting killed or renegotiated has weighed on the company’s power suppliers and led to a tussle between PG&E and renewable-energy giant NextEra Energy Inc.

For its part, PG&E said in a statement that the company hasn’t decided what to do with the contracts in bankruptcy and recognizes that it has an “important role in supporting the state’s commitment to clean energy initiatives.”

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