The myth of market neutrality

The new energy-policy realism sounds straightforward: no more special treatment. Let the market decide. Renewables must finally stand on their own. In this narrative, they are portrayed as a project that the state has artificially supported but can no longer afford.

It sounds like market sobriety. However, it rests on a convenient omission. For decades, fossil energy has been treated as strategic infrastructure – in exporting as well as importing countries. State guarantees, regulated grids, long-term supply contracts and diplomatic backing lowered financing hurdles and distributed risk. Such projects were – and still are – considered essential to energy security. Accordingly, no effort was spared. Those who now demand market neutrality either ignore this history, or deliberately apply a different standard.

Recently, social justice has also been invoked from unexpected quarters. Subsidies for solar energy, the argument goes, primarily benefit relatively affluent homeowners. Certainly, distributional imbalances in support schemes must be addressed. Yet it is striking that social justice is invoked with particular urgency in the debate over renewable subsidies – but far less so when it comes to the decades-long excess profits of fossil fuel companies. On the contrary, these profits are often cited as proof of a solid business model and the result of honest work – pardon, investment.

Fossil projects appear competitive because their risks have been collectively cushioned and their external costs (extreme weather, air pollution, etc.) have not been considered. Where risks are socialized, the investment threshold naturally falls. Continued investment in fossil infrastructure despite warnings about “stranded assets” is therefore less irrational than it may seem. The financial system rewards short-term returns – and distributes long-term risks.

During periods of high prices, oil and gas can quickly generate double-digit returns. Many financiers think in time horizons of three to five years, not thirty. If a project delivers stable cash flows within that window, potential losses further down the line appear manageable – or transferable.

Risk structuring reinforces this dynamic. Banks earn fees and pass risks on – to investors, funds or public actors. State guarantees and export credits further lower the barriers. Public instruments mobilize private capital – not the other way around.

Besides generation costs, it is also argued that modernizing the energy infrastructure required for a renewables-based system is simply too expensive. Grids, storage, flexibility options – all of these costs billions. Certainly, the investment needs are immense, and fossil infrastructure already exists – often written off and refinanced over decades. The costs of the past therefore no longer appear as costs.

But can the mere existence of legacy infrastructure justify clinging to it? By that logic, we would have never built new telecommunications networks, transport systems or industrial technologies.

Renewables change the logic of the energy system. They require high upfront investment and then deliver predictable, but generally moderate returns. They do not generate speculative price spikes like oil and gas projects during boom times or supply disruptions in the few major producing regions. Renewables are also more decentralized, more fragmented and more demanding from a regulatory standpoint. That makes them more complex to implement – but not economically inferior.

Indeed, new renewable installations are already competitive; the rapid expansion of storage, driven by falling costs and technological progress, reinforces this trend. The real cost debate no longer revolves around individual technologies, but around the overall system: grids, storage, industrial adaptation. These are investments not only in energy supply, but in resilience and sovereignty.

The decisive question, therefore, is not whether the state should intervene. It always has. The question is in which direction it distributes risk – and which technologies it continues to treat as strategic. Those who argue that renewables must compete without comparable framework conditions are not advocating market neutrality. They are defending the continuation of an existing asymmetry.

Finally, a narrow focus on costs also falls short geopolitically. Europe remains highly dependent on imported fossil fuels. Many suppliers are, to put it mildly, politically difficult. Dependence creates vulnerability – opening the door to coercion and political leverage. The experience with Russia demonstrated how quickly energy can become a geopolitical weapon. Recent trade policy turbulence in the United States further illustrates how profoundly political decisions can reshape markets.

Europe cannot afford this structural dependence strategically anymore. The question is therefore not only what energy costs at the point of generation – but what vulnerability costs us. Those who invoke the market today should also honestly account for the risks of fossil energy. The balance sheet looks very different when they do.

Written by Claudia Detsch, Director, FES Competence Centre Climate and Social Justice