Overcoming Bottlenecks in the Energy Transition: The Crucial Role of Project Development (Part I)

In the search for fast and efficient methods to stop climate change and its consequences, there is one area we cannot afford to overlook – the energy transition: the switch from traditional, mostly fossil, energy sources to renewable ones such as hydro power, sunlight, and wind. Worldwide, we are far from the “affordable and clean energy for all” envisaged in the global sustainability goals. So how can we drive this change in time? A key lever lies in project development – or to put it another way: it is currently considered one of the biggest obstacles. Before wind turbines can be erected and solar panels installed to ultimately generate clean energy, project developers face a multitude of challenges. From bureaucratic hurdles such as obtaining dozens of regulatory approvals to complex project rights and local specifics that must be carefully navigated – and no certainty of ultimately obtaining all necessary permits. All these steps require a lot of work, resources, and, above all, time – time that should not be wasted given the urgency of a new energy system.

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The Energy Transition Landscape: Bottlenecks and Hurdles

Before examining the role of Project Development, it’s essential to understand the challenges that characterize the energy transition landscape: Financial and political barriers, social acceptance issues, and complex technical problems. There are quite a few hurdles that need to be overcome before a solar collector can start collecting light. Project development plays a key role in overcoming these bottlenecks. It bridges the gap between ideas and implementation, transforming ambitious renewable energy goals into concrete, working projects.

It all starts with identifying and planning renewable energy facilities. This requires developers to search for a suitable site, reach agreements with landowners, apply for grid connections, understand and consider local factors such as environmental protection or legal requirements, and reach agreements with local communities and political institutions. Without effective project development, even promising renewable energy concepts remain on the shelf. And: all these steps require significant resources and a substantial financial investment.

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Taking risks in energy investments: Structure of an investment over time

Financing a solar project involves a high realization risk at the beginning, which is gradually reduced during the operating phase. This means a high financial risk for project developers – which sometimes deters them from taking on further projects or even entering into project development, as costs for development have to be advanced. They are therefore dependent on investors to finance and enable this essential step toward the energy transition, especially because returns of investment from project rights can only be expected two to five years later.

The risk landscape is complex and characterized by a dense web of regulatory intricacies, administrative requirements, the lack of specialized planning knowledge, local opinions, and the uniqueness of the context. All these factors contribute to slowing down the process significantly. On average, the development phase of solar projects and battery energy storage systems (BESS) is two years, and for wind projects, it can be as long as five years. Industry observations show that after the initial search for potential sites, only a fraction of all projects receive all necessary permits and reach “ready to build” status. Consequently, significant resources are wasted during this process.

The graphic shows the development of investment risk over time and the predictability of cash flow. The risk is highest during project development and decreases over time. Conversely, cash flow predictability increases as the project progresses. While many investors do not invest in physical energy infrastructure until projects have reached “ready to build” status, a massive success factor of the energy transition lies in the area of project development and its financing.

In part 2 of this series, we will dive deeper into the special relationship between investor and project developer - we will talk about what it takes for a successful collaboration and how we overcome obstacles together with our development partners.

About Pelion Green Future

Pelion Green Future is an independent investment holding company with offices in Munich and New York. Pelion invests in companies and entrepreneurs in the fields of renewable energies, clean technologies, and climate-relevant solutions. As a privately funded investment platform, it takes a long-term view. Pelion acts as a capital provider and sparring partner and supports partner companies with networking and hands-on support.