In 2014, Norwegian energy companies unveiled ambitious plans to develop a massive wind farm on the Fosen Peninsula. Despite objections from Sámi herders concerned about the impact on traditional reindeer grazing lands, political hurdles were cleared, and permits were issued. State-owned energy giant Statkraft declared the project was moving “full steam ahead.”
Yet, by 2015, the initiative ground to a halt—not because of local resistance, material shortages, or bureaucratic delays, but because projections showed the project would not deliver sufficient returns to justify investment. This quiet collapse of an emblematic renewable energy project is part of a more significant, underexplored issue: even as the costs of renewable energy plummet, the structure of global energy markets and the demands of capitalism continue to undermine the transition to a zero-carbon future.
The Price-Profit Disconnect
For years, the high cost of renewable energy was framed as the primary barrier to adoption. Fossil fuels, despite their environmental toll, were considered the cheaper and more reliable choice for powering the global economy. This narrative has shifted dramatically in recent years. According to the International Energy Agency, solar power is now the “cheapest electricity in history,” and BloombergNEF reports that renewable energy is cheaper than fossil fuel-based power in 96% of the world’s electricity markets.
Despite these record-low costs, renewables are not displacing fossil fuels at the necessary pace. Global energy demand continues to rise, and instead of replacing coal, oil, and gas, renewables often add capacity alongside them. The net effect is a world where fossil fuel use remains stubbornly high despite the wind and solar deployment surge.
The disconnect lies in the economics of profit rather than price. While the cost of generating energy from renewables has plummeted, these projects offer thin returns compared to fossil fuels. Oil and gas companies often report internal rates of return ranging from 20-50%, while renewables struggle to achieve 5-10%. This discrepancy in profitability has profound implications for investment decisions, particularly in a capitalist system that prioritizes shareholder value over ecological or social considerations.
The Legacy of Market Reforms
The current struggle to scale renewable energy is deeply tied to the neoliberal reforms of the 1990s, which restructured energy markets worldwide. In the decades following World War II, electricity generation was largely state-controlled or heavily regulated. Governments managed power generation, transmission, and distribution as integrated systems designed to provide reliable and affordable energy to the public. This model began to unravel with the rise of free-market ideology.
Energy markets were “unbundled,” separating generation, transmission, and distribution into distinct entities to promote competition. Privatization of electricity generation followed, creating fragmented markets where private companies now compete to supply power. This shift was dramatic. In the United States, independent power producers accounted for less than 2% of energy generation in the 1990s; by 2020, they produced 42%. Globally, similar patterns emerged, often driven by the policy prescriptions of the International Monetary Fund and the World Bank, which tied loans and aid to conditions of market liberalization.
This fragmented, competitive system now defines how renewable energy projects are financed, developed, and sold. Most renewable energy producers operate in wholesale and spot markets, where prices are set by competitive bidding. Producers must offer the lowest possible price to secure a sale, a dynamic that drives down costs for consumers but leaves razor-thin profit margins for developers.
Volatility and the Renewable Energy Gamble
Spot markets add a further layer of instability to the renewable energy sector. Unlike fossil fuels, which can be burned on demand, renewable energy production depends on weather conditions. When the sun shines and the wind blows, renewable energy floods the market, driving prices down. On less favorable days, prices spike as gas and coal generators fill the gap. This volatility makes revenue streams from renewables unpredictable, deterring private investment.
The high upfront costs of renewable energy projects compound the challenge. Unlike fossil fuel plants, where costs are spread over time through the ongoing purchase of fuel, renewables require significant capital investment at the outset. For example, 80-90% of a wind or solar farm’s lifetime costs are incurred during construction. In a market with inconsistent returns and heightened risk, many investors prefer investing their money into fossil fuel projects, which promise higher and more stable profits.
Stopgap Measures: PPAs and Subsidies
To counteract these challenges, developers have turned to mechanisms such as power purchase agreements (PPAs) and government subsidies. PPAs are long-term contracts between renewable energy producers and end-users, typically large corporations like Amazon or Google. These agreements provide price stability for developers and secure clean energy supplies for companies. However, PPAs shift decision-making power to a few corporate giants, concentrating control over renewable energy deployment in private hands. They also do little to address the systemic issues of market volatility and reliance on fossil fuel infrastructure.
Government subsidies, including tax credits, feed-in tariffs, and renewable portfolio standards, have driven renewable energy growth. China, for example, has leveraged state-backed investments to become the world’s largest producer of wind and solar power, adding as much capacity in 2022 as the rest of the world combined. In the United States and Europe, subsidies like those provided by the Inflation Reduction Act have similarly spurred development. However, these measures are politically fragile. Shifts in government priorities can lead to the sudden withdrawal of support, as seen in Vietnam, where a renewable boom ended abruptly when subsidies expired in 2021.
Lessons from History: The Fossil Fuel Paradox
The history of energy transitions offers essential lessons for today’s challenges. During the Industrial Revolution, coal-powered steam engines replaced water wheels not because they were cheaper but because they provided greater control and flexibility for factory owners. Fossil fuels became dominant because they aligned with the profit motives of capital, not because they were inherently superior.
Today, the inverse is true for renewables. Despite their cost advantages, their lower profitability and higher risks make them unattractive to investors operating within a capitalist framework. This underscores a fundamental contradiction: markets driven by profit are poorly suited to managing a transition prioritizing public and ecological well-being over short-term financial gains.
Toward a Sustainable Energy Future
The current system of renewable energy deployment is inherently limited by its reliance on private investment and market mechanisms. A more transformative approach would involve state-led renewable infrastructure development, prioritizing ecological and social objectives over profit. Models like New York’s Build Public Renewables Act and China’s state-backed energy strategy demonstrate the potential of public ownership to scale renewables rapidly and equitably.
However, global inequalities present significant obstacles. Many countries in the Global South lack the fiscal capacity to invest in renewable energy, burdened by debt and structural economic challenges. Climate reparations, debt forgiveness, and direct financial support from wealthier nations are essential to ensure these countries can participate in the energy transition.
A genuine shift to a sustainable energy system will require rethinking the role of markets and profit in determining energy policy. Public ownership and democratic control of energy systems can provide the stability and scale needed to meet global climate goals. By placing ecological sustainability and human well-being at the center of energy policy, we can move beyond the limitations of a profit-driven approach and build a truly renewable future.
