Renewable energy is increasingly affordable, often outpacing fossil fuels in cost-effectiveness. Yet, investments in renewables lag behind what is necessary to meet climate goals. Brett Christophers, in his book The Price is Wrong: Why Capitalism Won’t Save the Planet, explores why the economic structure of renewables does not naturally attract capital.
Christophers argues that the falling production costs of solar and wind energy lead to reduced revenues, which are unattractive to investors seeking high returns. Unlike fossil fuels, whose profitability can be manipulated by controlling scarcity, renewables operate at nearly zero marginal cost, making them less appealing for profit-driven capital. Christophers suggests that leaving the energy transition to the private sector alone will not suffice; the state must assume a more prominent role.
The essence of Christophers’ argument is that without sufficient returns, private capital will shy away from renewables. He details instances where low-bid renewable projects were either canceled or required additional support due to financial pressures like inflation and supply chain issues. Historically, the renewable sector has depended heavily on subsidies and government incentives, not on unassisted market forces.
To accelerate the transition, Christophers proposes that governments should actively build and own renewable infrastructure or support it through public agencies. Where private involvement occurs, the state should guarantee financial returns via long-term contracts or subsidies, ensuring stable revenues.
He asserts that electricity should be treated as a public good, best managed through planned investment rather than volatile markets. Christophers advocates for a significant expansion of state participation in the energy sector, relegating private capital to a supportive role under strict public oversight.
However, critics argue that renewable profitability varies significantly depending on technology, location, and market design. For instance, rooftop solar in Germany presents a different financial scenario than offshore wind projects in the North Sea. Many believe that market design can be adjusted to stabilize incomes. Options like contracts for difference, long-term purchase agreements, and capacity payments have successfully attracted substantial private investment. Additionally, non-financial hurdles like lengthy permitting processes and grid congestion also impede renewable deployment.
While Christophers highlights the profitability issue, it is not the sole obstacle to progress. Public ownership can expand capacity, but it is not without challenges. State-run utilities have had mixed results, and governments face limitations such as budget constraints and political influences.
History shows that a combination of public regulation and private execution has been effective in building infrastructure. Railroads, highways, and telecommunications were all developed through government intervention, making them viable for investment. The clean energy transition requires similar frameworks to mobilize capital efficiently.
One approach is designing markets that ensure adequate returns. Energy-only spot markets expose renewables to price volatility, deterring investment. Tools like the UK’s contracts for difference provide a fixed price for power generation, stabilizing cash flow and making projects more attractive to financiers.
Governments can also support renewable finance through green banks, loan guarantees, or co-investment funds, mitigating risks that deter private lenders. The Inflation Reduction Act in the USA exemplifies how public funds can create private profitability by offering tax credits and direct payments, spurring a surge in clean energy projects.
Direct public investment in infrastructure that private markets cannot promptly develop is also crucial. Transmission lines and large-scale storage are often unprofitable for private firms but essential for renewable integration. Public funding or regulated monopoly frameworks can ensure these projects are built, facilitating private sector participation.
Carbon pricing and clean energy standards can further shift the economic balance toward renewables. By making fossil fuels more costly or mandating higher renewable shares, governments can create market demand for clean energy, encouraging investment.
Streamlining permitting processes and reducing soft costs can also enhance project profitability. Every reduction in regulatory delays increases a project’s net present value, making it more appealing to investors.
In certain cases, public ownership is warranted. Grid infrastructure, repowering old coal sites, or early-stage offshore wind projects may benefit from public models, especially where private capital is hesitant. Such ventures should be transparently managed, focusing on delivering reliable, low-cost clean power.
International examples demonstrate the effectiveness of a blended approach. The UK’s offshore wind success is due to investment-protecting contracts. The USA’s project surge follows the Inflation Reduction Act’s incentives. China’s energy expansion combines state planning with both public and private execution. These examples highlight that when governments set the rules and assume part of the risk, private capital can significantly expand clean energy capacity.
Original Story at cleantechnica.com