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WHY PRIVATE INVESTMENT ISN’T DRIVING A RAPID GREEN TRANSITION  
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An Interview with Brett Christophers
February 5, 2024
Jacobin
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_ Declining renewable energy prices have not led to a long-predicted
renewables boom, because green energy still isn’t sufficiently
profitable for private investors. Public investment and ownership is
essential to driving a rapid green transition. _

One of the main reasons that capitalism hasn’t been greening at the
pace we need is precisely because it’s not an attractive proposition
in profitability terms., (Wikimedia Commons)

 

_Interview by Cal Turner and Sara Van Horn_

In 2019, for the first time, renewables became as cheap as dirty fuel
— an event many heralded as overcoming the final hurdle to an
economically viable green transition. Commentators, politicians, and
green industry leaders alike predicted that price parity would usher
in a renewables boom, drastically reduce fossil fuel use, and mitigate
the worst impacts of climate change.

In his new book, _The Price Is Wrong: Why Capitalism Won’t Save the
Planet_ [[link removed]],
Brett Christophers shows how cheaper renewables did not trigger an
adequate energy transition, arguing that lower prices alone will not
transition us to a green future. He explains the continued importance
of public investment in renewable energy and illuminates the
wide-reaching and differential global impacts of the energy crisis of
2021–22.

Cal Turner and Sara Van Horn recently spoke with Christophers
for _Jacobin_ about the financial sector’s chokehold on renewable
energy, the global geography of energy investment, and what he sees as
the most promising blueprint for a successful green transition.

CAL TURNER

In _The Price is Wrong_, you offer an argument about why capitalism
has failed to solve the climate crisis that differs from those of many
other thinkers. What is your particular intervention?

BRETT CHRISTOPHERS

In the book, I’m trying to add another voice to existing arguments
on the Left about why the climate crisis is proving obdurate. My
argument is that a lot of what needs to happen to transition us away
from fossil fuels is not particularly attractive to business.

The area I focus on in the book is clean-energy generation. Owning and
operating solar- and wind-power facilities and generating electricity
for sale is generally not very profitable. That’s a huge problem if
solar and wind are the main answers to the climate crisis and if
governments are relying on the private sector to drive the development
of renewable energy.

Both of those suppositions are broadly true: almost all relevant
actors say that solar and wind are key to the green transition, and
most governments have said that that transition is up to the private
sector. Because of this, the constraints on expected profitability are
a real problem.

The Left often assumes that everything the private sector does is
inherently profitable, which includes thinking that “green
capitalism” is just like any other form of capitalism and that the
private sector is awash with profits. I don’t think that’s the
case. One of the main reasons that capitalism hasn’t been greening
at the pace we need is precisely because it’s not an attractive
proposition in profitability terms.

SARA VAN HORN

Many have thought that reductions in the price of renewable energy
would make a green transition economically feasible. Why do you think
focusing on the price of renewable energy is unhelpful for thinking
about its viability?

BRETT CHRISTOPHERS

The economics of the transition to renewables and away from fossil
fuels has traditionally been understood through a focus on price. For
years, commentators and politicians on both the Left and the Right
argued that renewables would not be broadly pursued while they
remained more expensive than fossil fuels.

The argument was twofold: first, governments needed to intervene in
the economics of power generation to offset that cost disadvantage,
and second, governments only needed to do that for as long as those
inherent price differentials continued to exist. Once price parity had
been achieved on power generation, governments could safely remove
those support mechanisms, renewables would be able to stand on their
own two feet, and the energy transition would be resolved.

That has remained the dominant economic lens for understanding the
energy transition for a long time. But price parity on generating
power was achieved years ago, and yet we’re not moving toward
renewables at anything like the rate we need to. Renewables are
growing quickly, but not quickly enough to displace fossil fuels.
Electricity generation from renewables has been purely supplemental to
— rather than substitutive of — electricity generation from fossil
fuels, which is a massive problem. The traditional economic lens
can’t explain that.

At the end of the day, it’s not about price; it’s about
profitability. Prospective developers — and, just as important, the
financial institutions that lend them the money to carry out that
development — will only invest if there is a solid expectation that
the profits from doing so will be sufficiently attractive.

The cost of generating power enters into the equation, as do costs
like physical delivery of power to customers, which can come at a high
premium. When renewables developers need to finance a new facility
they are hoping to build, the big question financial institutions ask
them is how much profit they expect to generate from that facility
over the next twenty or twenty-five years, given their anticipated
costs and revenues. A development will only take place if the
developer is satisfied that they will be able to earn a sufficient
amount of profit over that time period. If you talk to the entities in
that world — developers and bankers — they talk about profits, not
price.

CAL TURNER

What is the role of the financial sector in renewable energy? Why are
financial institutions so important for renewables?

BRETT CHRISTOPHERS

It’s easy to think that, in the renewable development industry,
it’s the developers who decide whether and what type of facilities
get built. Although that’s superficially true, the reality is that
it’s actually the financial sector that decides whether renewable
facilities get built and at what pace.

The initial construction of most solar and wind farms is financed
primarily with credit from financial institutions. Once a renewable
energy plant is up and running, there are almost no ongoing operating
costs except the repayment of these debts. For every renewable
development that takes place, there are multiple developments that
don’t take place, because the prospective developers were unable to
raise the financing on sufficiently attractive terms.

Finance is also particularly important because of the relative youth
of the renewables industry. In the context of capitalist history,
renewables have existed only for the last decade or so; they are very
young.

Oil and gas companies, if they are developing a new oil or gas field,
fund the new drilling and exploration from cash they have earned
through existing operations. It’s completely different for a
renewables company. A handful of big companies with significant cash
reserves are active in renewables development, but for every one of
those, there are dozens of small-scale players that require external
financing to develop new projects.

If you look at the big players, they also tend to finance development
of new renewables projects principally through external debt
financing. That means that finance plays a much more significant role
in the renewable sector than it does in many other sectors of the
economy.

Financial institutions play a significant role not just on the debt
side of renewables, as providers of loans for new projects, but also
on the equity side. Large asset-management and other financial
investment institutions, such as Brookfield Asset Management,
Macquarie, and Blackrock, are major owners of renewable
energy–generating facilities around the world.

SARA VAN HORN

Can you talk about renewable energy generation in the Global South?
What are the obstacles to it? How is it currently financed, and what
do you predict for its future?

BRETT CHRISTOPHERS

This is probably the most important question. Many debates in Europe
and North America focus on what’s happening in those regions, but
the future of the planet, in terms of the power sector, the
electricity sector, and related emissions, will not be decided by what
happens in Europe and North America.

One reason is that the transition to renewables has already proceeded
further in parts of Europe than it has in many other areas of the
world. The other is that energy demand and, in particular, demand for
electricity will not increase in Europe and North America at anything
like the rate at which it’s expected to increase in non-Western
parts of the world. India, where hundreds of millions of homes have
only recently gotten access to electricity, is a good example.

The Global South is also where the countries that are currently most
reliant on fossil fuels for electricity generation are concentrated.
Over 80 percent of electricity generation in South Africa is
coal-based generation. In India, it’s about 75 percent; in China, it
was about 65 percent in 2022. The pace of these countries’
transitions away from fossil fuels will determine the overall growth
in power-sector emissions over the next few decades.

The problem here is that, in large parts of the Global South, there
are far more obstacles to financing new solar and wind power than
there are in Europe and North America. Private sector lenders perceive
renewables development in the Global South to be much riskier than in
various Western nations. I say “perceive” because whether that
perception accurately reflects actual risk is almost neither here nor
there — it’s the risk perception that dictates the interest rates
at which they are willing to lend.

In recent years, many studies have shown that it can be five or six
times more expensive to raise private financing to develop solar or
wind power in various African countries than it would be in most
European countries. Because of this prohibitively expensive debt
financing, most renewables projects don’t get off the ground.

That’s why there have been growing calls in recent years, both from
those countries themselves and from politicians, regulators,
activists, and campaigners in the Global North, to reduce or subsidize
the cost of that financing through multilateral institutions like the
World Bank. People are trying to facilitate a faster pace of
transition in Global South countries by making finance more affordable
to them.

It’s impossible to make global generalizations about the “energy
transition,” because the energy transition looks completely
different in different parts of the world — both in terms of the
extent to which it has been achieved so far and the political,
logistical and financial challenges that remain. If you talk to people
in various parts of the Global South about the energy transition, many
of them say, “Forget energy transition — we just want to think
about energy access.” If you’re in a country where hundreds of
millions of homes don’t have access to energy, then the energy
transition is not your main concern right now.

CAL TURNER

What caused the energy crisis of 2021 and 2022, and what were its
impacts — especially in terms of renewable energy?

BRETT CHRISTOPHERS

In 2021 and 2022, there were significant challenges with simply being
able to generate enough energy in many parts of the world. This was in
part because of shortages of necessary fuels, and it was particularly
severe in countries that still rely on coal and gas to generate power.

The cost of generating power went up a lot in many parts of the world.
Those costs were passed on to consumers, and many governments stepped
in to offset the impact on consumers of those energy increases. The
centers of the energy crisis were Western Europe, China, and Southeast
Asia, and the crisis looked very different in all those places.

The Russian invasion of Ukraine had a significant impact in Western
Europe. A lot of energy supply in Western Europe has recently been
reliant on Russian commodities: coal, oil, and natural gas. Because of
Russia’s use of energy supplies as an economic weapon, the war threw
the energy supply into emergency mode, which had a negative impact on
the development of renewables in the short term. Germany, for example,
which had been reducing its reliance on coal, had to resort to
significantly increasing its reliance on coal in 2021 and 2022 in
order to generate electricity in the absence of natural gas.

In the long term, the crisis actually gave a bit of a lift to European
development of renewables. Because natural gas prices went up so much,
any economic advantages that renewables did have were enhanced by the
increase in natural gas costs during the crisis.

Even more important than the economic reasons for this transition was
the political logic: a lot of the impetus to accelerate renewables
development in Western Europe during the crisis arose because of
national concerns with energy security. The folly of relying upon an
unpredictable overseas nation for energy security was thrown into
stark relief in 2021 and 2022 in a way that it hadn’t been in a long
time.

One argument you heard from a lot of mainstream European commentators
in 2022 was: there’s no energy crisis. Households and industry have
proven endlessly adaptable, and this is the power of the market at
work. The price of energy has gone up drastically, in terms of both
gas and electricity, and we in Europe have successfully responded to
that.

That’s not true. There were two main reasons why what many feared
would become a catastrophic energy crisis in Europe did not, in fact,
become one. One was that governments came to the rescue by giving out
massive subsidies to households and industry, which protected
households from a significant proportion of the cost increases.

The second reason was that Europe exported the energy crisis to other
parts of the world. Western European nations compensated for the fall
in the supply of natural gas from Russia by importing natural gas from
other places at prices that meant that parts of the world that had
been relying upon those natural gas supplies were no longer able to
afford them.

That’s particularly true of South Asian nations. Natural gas that,
in the ordinary scheme of things, would have gone to Pakistan,
Bangladesh, and India to help fire power plants in those countries
instead went to Western Europe, because Western European nations
essentially outbid them for that fuel.

Because of this, the energy crisis proved far more significant and
consequential in South Asia than in Europe. There were far more
rolling blackouts in those countries than in any Western European
nation.

SARA VAN HORN

You touch on several different ways that governments can and do
subsidize renewable energy, including derisking, public ownership, and
public-private partnerships. What are the major myths circulating
about these different forms of government involvement? What are the
most effective forms of government support?

BRETT CHRISTOPHERS

When it is announced, anywhere in the world, that private sector
renewables are standing on their own two feet and not relying on
government support, it is a significant myth. There is nowhere in the
world where renewables are not substantially reliant on government
support.

Every time that governments have tried to substantially reduce support
to renewables, investment has collapsed, which in itself highlights
the necessity of ongoing government support to private sector
renewables. Because the data show that renewables is just not very
good business from a profitability standpoint, you need — and have
historically needed — government support in order to keep
profitability at a level that will maintain private-sector interest.

Once government support is reduced and profits inevitably fall,
there’s a chilling effect on investment where the private sector
withdraws. Unless governments are willing to take on the burden of
substantially developing renewable power themselves, through public
ownership, they have no choice but to continue to subsidize and
support it.

_Brett Christophers is professor of human geography at Uppsala
University’s Institute for Housing and Urban Research.  Cal Turner
is a writer based in Philadelphia.  Sara Van Horn is a writer living
in Serra Grande, Brazil._

* Renewable energy
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* corporate profits
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* Climate Change
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