High spot electricity prices are pushing down potential payback periods for European renewable energy projects to less than a year in key markets such as Germany, research by Rystad Energy found.
Capital investments in renewables at the same time are set to reach $494bn this year, likely exceeding those in upstream oil & gas, which are seen at $446bn in 2022.
“Capital investments in renewables are set to outstrip oil and gas for the first time this year as countries scramble to source secure and affordable energy,” Rystad Energy senior vice president Michael Sarich said.
“Investments into renewables are likely to increase further moving forward, as renewable project payback times shorten to less than a year in some cases.”
While solar PV and wind projects so far have primarily relied on subsidies to get projects over the line, taking current spot prices in Germany, France, Italy or the UK would all result in paybacks of 12 months or less, the analysts said – even despite cost pressures due to recent commodity and supply chain issues.
Assuming a long-term electricity price of €50/MWh ($49/MWh), the expected post tax return is approximately 6% with a payback period of 11 years, the analysis showed.
A price of €350/MWh or above, however results in a payback period of only one year while a price of approximately €180/MWh – the European Commission’s proposed revenue price cap – still halves the payback period to as little as five years.
Spot market prices are fickle, however. Average monthly spot prices for August in the countries mentioned were all well over €400/MWh, Rystad said.
But the European Epex spot market today showed day-ahead prices for the key German market at €254.99/MWh, and similar values for neighbouring price zones such as France or Austria.
