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Home ImpactBlog Why infrastructure investments are the key to the energy transition

Why Infrastructure Investments Are the Key to the Energy Transition

Jörg
05. February 2025

We often hear the argument: ‘Renewable energies are too expensive and only work with subsidies.’ But if we take a look at the figures, it becomes clear that fossil fuels are also heavily dependent on public funding - worldwide.

Fact Check: Fossil vs. Renewable Subsidies

According to the business magazine Capital, 7 trillion dollars was subsidised for fossil fuels worldwide in 2022. Direct subsidies accounted for 1.3 trillion dollars of this; the remainder were consequential costs due to environmental pollution, health risks and climate damage. In comparison, according to the EU report, subsidies for renewable energies totalled ‘only’ 390 billion dollars (that is only 5.57% of the subsidies for fossil energies).

Why these massive differences? Because fossil fuels cause continuous costs for raw materials, logistics and disposal - a bottomless pit. Renewable energies, on the other hand, mainly require initial investment, for example for solar plants or wind farms. After that, they generate energy almost free of charge and cause no environmental or health costs.

Warum diese massiven Unterschiede? Weil fossile Energien kontinuierliche Kosten für Rohstoffe, Logistik und Entsorgung verursachen – ein Fass ohne Boden. Bei erneuerbaren Energien dagegen fallen vor allem anfängliche Investitionen an, etwa für Solaranlagen oder Windparks. Danach erzeugen sie Energie fast kostenlos und verursachen keine Umwelt- oder Gesundheitsfolgekosten.

Why Subsidies are Useful and Necessary

Subsidies promote innovation and ensure that even structurally weak regions can benefit from sustainable infrastructure. This not only applies to renewable energies, but has always been a recipe for success for the construction of roads, railways and communication networks - both in developing and industrialised countries.

Infrastructure affects the entire connected and neighbouring population. The indirect effects on the economy do not only benefit the direct customers, meaning that the individual infrastructure provider cannot skim them off the top. In addition, demand and sales often occur with a time lag. If the overall interest rate is significantly higher than 0 %, there is not much left when discounting the late capital returns. Subsidies are therefore necessary to make the projects attractive to investors.

This can be achieved through direct subsidies, public-private partnerships (PPP) or result-based finance programmes (RBF), in which the state pays companies money for certain results, such as supplying households with electricity. This gives companies a calculable basis.

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The money that currently flows into subsidising fossil fuels could be invested in the expansion of renewable energies. In this way, we raise projects above the profitability threshold - and make them attractive for private investors.

Prof. Dr. Wolfgang Rams, CEO - AGT AG

The Problem with Fossil Subsidies

Sub-Saharan Africa in particular shows how inefficiently fossil fuels are subsidised. Both raw materials and new technology are becoming increasingly expensive. The result: outdated and inefficient power plants that exacerbate the energy crisis. In order to make electricity from outdated, inefficient power plants affordable for the population, diesel must be heavily subsidised by the state. Many governments in sub-Saharan Africa cannot afford to do this and there are increasingly frequent planned power cuts and plant shutdowns. With a centralised power grid, this means can of course also be used politically to disconnect the population from electricity in the event of government crises.

Renewable Energies as a Sustainable Solution

Once set up, mini-grids and solar projects like our ImpactSites are financially viable. Solar energy does not incur any ongoing raw material costs, so electricity remains affordable for people - a model for the future!