Navigating the new economics of renewables

Pamela Largue (0:12)

Renewable energy has never been cheaper to produce. However, it's becoming more challenging to ensure renewable projects are economically viable in an increasingly complex and competitive power market. Falling technology costs are being offset by factors such as price cannibalization and more frequent negative power prices, raising questions about where to invest, how to structure projects and PPAs, and how to manage risk.

In this episode of the Energy Transitions Podcast, I discuss these issues with Hallvard Granheim, Executive Vice President of Markets at Statkraft. He discusses the changing economics of renewables, the rise of hybrid projects, and increasingly sophisticated PPAs. Hallvard also elaborates on what needs to happen for renewable energy to remain both competitive for industry and financially sustainable for producers. I'm Pamela Largue, and this is the Energy Transitions Podcast.

Hallvard, thank you so much for joining me today. We're talking about the economics of renewable energy. Renewables have become dramatically cheaper over the past decade, yet the economics of developing new projects have actually become more challenging. So explain the situation to us. What has changed?

Hallvard Granheim (1:32)

Yes, so this is a bit complex, but I think one of the tricky part is that kind of success of revenues has also been a cannibalization of the revenues. So if you look at, for instance, solar, the renewables is eroding their own values. In practice, that means that when the solar have the kind of high production in the bidding zone, a lot of the same producers at the same time, that will also dramatically reduce the prices in those hours and could also lead to curtailments in markets with high renewable share. So what we see is that negative prices have involved into a structural feature of many markets. For instance, in Spain, we can use that as an example, first half of 2026, almost one third of the solar generation triggered negative hours. And we see some of the same trends in both markets like Germany, France and Poland. But on the flip side, technology has become much cheaper.

Solar module costs have fallen around 90% the last decade. So cheaper technology is counterbalancing part of this. And the third element is grid connections. We see that grid connections have become a very scarce resource. So some project in Europe might take 5 to 7 years just on the grid queue.

And that is also weakening the business cases. And also when investment decisions take that much time, investments are also drying up. So that's a kind of a tricky dilemma of the new production coming into the system.

Pamela Largue (3:10)

When you assess a new Wendel Solar Project, what makes the difference between a project that creates attractive returns and one that doesn't?

Hallvard Granheim (3:18)

I think what is needed is that you really need to understand the location of the Solar Project. First and foremost, you need a good grid connection and you also need to understand what is different other technologies in that region. The more flexibility and also less cannibalization effect, the more attractive the Solar Project will be. So it's less about technology cost, it's more about understanding the market and the need in that specific bidding zone.

Pamela Largue (3:45)

That makes sense indeed. I'd like to actually focus on Statkraft for a moment, because obviously the company has put a great deal of emphasis on profitability, rather than simply adding new renewable capacity. Does that represent a broader maturation of the renewables industry, would you say?

Hallvard Granheim (4:05)

I think this is the same as the other players. We see that most players have matured a bit, so the profitability part has now become a much more important part, than just creating more additional renewable power. When the long-term fundamentals of the Energy Transition remain strong, the shorter medium environment has become more complex and also uncertain. Also, the geopolitical tension are affecting the energy market and the investment conditions. And security for the built-in capital has risen on the political agenda. So what we see is that a recent increase in long-term interest rates have also put pressure on capital-intensive industry-like renewables and are raising also the threshold for attractive investments. So within this context, renewable energy companies are prioritizing value over pure volumes. And success is no longer simply about adding megawatts, it's about selecting the right project, develop them competitively, and also optimizing existing assets and maintaining the financial strength of the investment over the full lifetime of the project.

Pamela Largue (5:14)

On that point, are we seeing an increase in perhaps life extension of assets, you know, specifically, for example, wind farms, re-powering projects, you know, rather than adding new capacity?

Hallvard Granheim (5:26)

I think there's two dimensions. One is that extending lifetime. Some of the old projects were built with kind of maybe more headroom in kind of use of material, so the kind of lifetime expectation were maybe a bit short. Another interesting dimension is that grid capacity have become a scarce resource. So for existing power plants, a renewable project that already exists and have that grid access has become more valuable.