Building new wind and solar projects is getting harder but this German village could have the answer

The wind gusting across north German farm country brings much to the village of Sprakebuell: fog and rain from the sea, the occasional migrating stork, and the faint smell of manure in the newly fertilised fields.

And perhaps best of all, money - from selling the electricity generated by the wind turbines studding the flat green fields stretching out to the North Sea. A slice of the cash goes to the villagers themselves, with the local buy-in making this windy farming enclave near the border with Denmark a showcase for ways to push ahead with renewable energy projects.

It's not easy when headwinds from the post-pandemic global economy - including high interest rates and inflation - are holding back often costly investments in wind, solar and other forms of clean power.

That is slowing the growth in renewables needed to fend off climate change, just as it needs to speed up to meet an ambitious goal reached at the UN climate summit to boost clean energy capacity.

Renewable energy paying for community projects

Sprakebuell, a three-street cluster of neat one-story houses where tractor traffic outnumbers cars, has seen new life and added prosperity thanks to renewable energy.

Small as it is, some of the German town's practices offer lessons that could resonate globally.

• Over half of European voters think climate action is a priority, exclusive Euronews poll reveals

• ‘Enormous potential’: Inside Scotland’s green strategy to power the nation solely with renewables

The dividends from citizen-owned wind parks don't make the recipients rich. Instead, the money is a little extra jingle, a financial buffer "that's very important for us because it gives us a certain freedom," said Astrid Nissen, 44, who with her husband manages a 150-cow dairy farm on the village's outskirts.

Milk prices fluctuate wildly, but the steadier income from the wind parks is "something we can rely on, something we can use to plan," she said, occasional moos coming from the barn behind her.

The whoosh, whoosh, whoosh from the turbines - inaudible in the village centre but noisy up close - contribute some €400,000 a year in taxes. That paid for a new playground, a bike path and even free piano lessons for Sprakebuell's children.

When it comes to new projects, global hurdles include higher borrowing costs that make it more costly to fund them, high prices and clogged supply chains for wind turbines and blades, and "not in my backyard" resistance to wind farms.

Interest rate hikes from the US Federal Reserve, the European Central Bank and others have economists at University College London warning of "green collateral damage" and calling high borrowing costs meant to fight inflation "terrible news for the green transition."

• Italy set new solar and wind records last year but is still off track for 2030, expert says

• Belgium eyes offshore wind and solar to increase renewables’ capacity

Consultancy company Wood Mackenzie found that "clean energy has witnessed one of the toughest years in its short history" with government calls for more generating capacity going unfilled in Germany, Spain, the UK and Italy.

The situation is even more serious for lower-income countries in places like Africa, where borrowing costs for the higher up-front investment needed for renewables were already high and have risen even further.

How do Sprakebuell's community-owned wind farms work?

In Sprakebuell, the number of family farms shrank from 26 in 1960 to three larger ones today. It was on the verge of being merged with a neighbouring village 30 years ago. Now, it's home not just to farmers, but people who work a half-hour away in the city of Flensburg.

Sprakebuell's residents put in the 20 per cent down payment on building a wind park and local banks lent the remaining 80 per cent. The first wind park had 24 participants; the latest one had more than 150 as word spread.

Nissen and her husband started with an investment of the equivalent of just over €5,000 more than 20 years ago. The dividends helped pay for a new calf stall, a front-end loader to shovel out animal feed and two workers.

"That means we sometimes have a free weekend, sometimes a vacation - and without employees, that's impossible," she said.

Not everyone takes part, but all residents see benefits. There's a shared electric car in the middle of town that anyone can book by a smartphone app for €2.50 an hour.

A small grocery store has opened with an attached cafe, and a restaurant serves lunch daily - signs of new purchasing power. Some similar-sized villages in the region have neither.

"Renewable energy projects are visible in the landscape, and for me, it's very important that local people can identify with these projects," said Christian Andresen, whose company, Solar-Energie Andresen GmbH, developed the wind farms and solar installations.

What is holding back renewable energy projects?

Andresen's projects illustrate factors that can move renewables forward. One is the German government's guaranteed price for electricity over 20 years, which gives banks confidence they can lend and get paid back.

Another is low interest rate loans from the government development bank, the KfW. But even those rates have risen, from 1 per cent a few years ago to over 5 per cent, Andresen said.

High interest rates hold back renewables far more than fossil fuel projects. Most of the cost for renewables is up-front in the price of buying the wind turbines or solar panels, while costs to operate them going forward are negligible - the wind blows and the sun shines for free.

That makes the cost of borrowing a much more important factor in whether the project will be profitable.

• ‘Problem child’: Transport on track to produce nearly half of Europe’s emissions by 2030

• World Water Day: Shocking stories from the frontlines of the worldwide water crisis

It's the other way around with fossil fuels: a natural gas-fired electricity plant is relatively cheaper to build, while the real costs come later in buying the gas.

On top of that is inflation, which has raised the cost of building facilities, and equipment shortages due to jammed supply chains.

Those were some reasons Danish company Orsted cited when it cancelled two large wind installations off New Jersey. Swedish utility Vattenfall also halted an offshore project in the UK.

The S&P Global Clean Energy Index of shares in companies with clean energy-related businesses has fallen 26 per cent over the past year, even as broader market indexes have surged to records.

In the US higher rates have been a "speed bump" for some renewables projects, said David Shepheard, North American energy and utilities partner at global consultancy Baringa.

"The returns are squeezed in the current rate environment" but are brightening, he said, with the Federal Reserve expected to cut rates three times this year.

The overall picture is nuanced, with a slowdown in renewables by oil majors easing supplier logjams, while domestic content requirements for US subsidies increase supply chain delays for some projects.

'When I have a share in it, it's a nice noise and a nice view'

In sub-Saharan Africa, where half the population lacks access to electricity, renewable projects face even steeper challenges with financing. With lots of sunshine, solar is an obvious option, but Africa's 1.2 billion people have one-fifth the solar power of cloudy Germany.

Borrowing costs there are far higher than in rich countries, while government subsidies are uncertain because of political upheavals and countries already deep in debt.

In Nigeria, where blackouts are an everyday event for about half of the country's 213 million people, some 14 solar projects have stalled because the finances don't add up.

The government has been cautious of World Bank credit guarantees that would make the projects bankable, concerned about being required to pay for the power even if the grid can't deliver it.

• ‘A beautiful idea’: This French town is making its cemetery a source of solar energy

• Can you fit a heat pump in an apartment? New York is testing new window-mounted tech for renters

But without that, "nobody will develop or finance a project with a government subsidy because it can dry off," said Edu Okeke, managing director of energy company Azura, a stakeholder in the Nova solar project in Nigeria's northern Katsina state.

The answer can be to raise the price of electricity - which the German government did last year by 25 per cent. That also helps secure financing. Another is subsidised interest rates or credit guarantees as part of developed countries' efforts to help poorer nations combat climate change.

And where locals are the owners instead of big energy companies, objections to the appearance of wind farms, shadows or whooshing tend to fade, said Andresen, the wind developer.

"When I have a share in it, it's a nice noise and a nice view," he said.