Political and regulatory uncertainty could stall more renewable projects in 2024
Market Insight 29 January 2024 29 January 2024
Asia Pacific, North America, UK & Europe
Predictions 2024 - Climate Change
While investor appetite for renewable energy projects remains strong, a lack of political certainty and regulatory clarity means many projects either stall or fail to get off the ground.
While investor interest in renewable energy projects remains strong globally, companies looking to develop initiatives are struggling to get them off the ground in a number of jurisdictions due to political uncertainty.
At the COP28 Summit in December, one of the most widely-supported initiatives was the commitment to triple renewable energy capacity by 2030, with 118 governments signing up to the pledge.
However, developers of renewables projects and their investors will be aware of the risk that some governments could either row back on pledges, or water them down amid competing funding commitments.
With a record number of elections expected in 2024, there is some optimism that political will on development of renewables may shift towards a more positive focus, depending on electoral outcomes.
But while there may be political support ahead for green energy projects, in practice it can prove challenging for companies to access grants, subsidies or other financial incentives such as favourable tax treatments put forward by governments.
The challenge for companies developing renewable projects is that, in addition to finding investors, they also need to work with governments on changes to energy regulation and infrastructure that help make the production and distribution of renewable energy viable.
Without a clear delivery path, companies will struggle to find customers for renewable energy solutions, and without clear offtakes (which often require some form of government support) investors are less likely to commit to projects.
This widespread uncertainty around the future of renewable projects is leading to stoppages in multiple jurisdictions. For example, in March 2023, the UK government announced its decision to halt progress on any large-scale bio-energy with carbon capture and storage (BECSS) projects in the near future, forcing companies involved in the space to suspend investment in proposed projects. This could potentially change but it has created significant uncertainty around BECSS and accordingly other renewables projects.
We anticipate the current environment of uncertainty around government support and regulatory clarity on renewables will continue into 2024. This may result in delays, shutdowns or projects never getting off the ground, which could in turn result in disagreements between counterparties, potentially leading to litigation.