The cost of capital has replaced policy and permitting as the main constraint on European renewable investment, Spanish firm Repsol's executive managing director for low-carbon generation Joao Costeira said today.
The sector's expansion was based on low interest rates that no longer exist, Costeira told Wood Mackenzie's European Power Investment Summit in London. Renewable assets carry high leverage, so higher debt costs feed directly into returns.
And developers created much of their value by selling de-risked operating assets to institutional buyers seeking stable, low yields. Those buyers can find competitive returns from government bonds, thanks to the general rise in interest rates in recent years.
Costeira described grid constraints, a lack of storage and capacity mechanisms, and political uncertainty as more manageable problems than interest rates.
Bond yields have risen across the currencies that developers use. The 10-year German Bund yield has climbed above 3.5pc, its highest since June 2009. The European Central Bank raised its deposit rate to 2.5pc from 16 September, its second increase this year, to contain energy-driven inflation. The 10-year UK gilt yield touched 5.295pc on 10 September, its highest since August 2007. And the 30-year US Treasury yield reached 5.37pc the same day, Federal Reserve data show.
European project finance is priced off euro and sterling curves, so the discount rate on a 20-year contracted cash flow has moved against developers in each of their main markets.
Majors retreat
Repsol cut its 2030 renewable capacity target to about 10GW in February from 20GW previously.
It had more than 5.8GW installed at the end of 2025 and aims for 9GW by 2028. At its capital markets day in March, the company said its low-carbon generation business would be self-financing, with returns above 10pc.
Other European majors have gone further. Norway's Equinor dropped its 10-12GW renewable capacity target for 2030 at its capital markets day in June, with chief executive Anders Opedal saying the company had known for several years that it would miss it. It replaced the goal with more than 20TWh of power output by 2030 and plans to allocate about 10pc of capital expenditure to power in 2028-30. BP abandoned its 2030 renewable capacity goal of 50GW in February last year.
Repsol is shifting a greater share of capital to the US, where demand growth and lower market saturation support returns, and away from Spanish solar exposed to merchant prices, Costeira said.
Targets stretched
The pullback comes as official targets require faster buildout.
Renewables made up 26.2pc of EU gross final energy consumption in 2025, provisional Eurostat data show, against a binding 2030 target of 42.5pc. Meeting it would require an average increase of 3.3 percentage points a year in 2026-30, compared with a rise of 1 percentage point in 2025.
Spain, Repsol's home market, targets 76GW of solar and 62GW of wind by 2030 under its national energy and climate plan, with renewables supplying 81pc of electricity.
Germany targets 80pc renewable power by 2030 and 215GW of solar. Renewables covered a record 58pc of German power consumption in January-June, according to preliminary data from research institute ZSW and utility association BDEW, and installed solar capacity reached 129.3GW at the end of August.
The US Federal Reserve is expected to raise rates by 25 basis points later today, its first increase since 2023. The Bank of England will take its rate decision on 17 September, with its rate at 3.75pc.
