By STANLEY REED
LONDON — Europe used to be nirvana for companies in the clean-energy business, but in the past couple of years it has become a much tougher place. With economies anemic, electricity demand is down; and, not surprisingly, once-generous subsidies that encouraged installing swaths of solar collectors in sun-poor Germany or wind farms in relatively calm areas of France are either being reduced or look as if they could be.
But for some people and companies, the harsher environment is fostering a tough-minded approach that may be healthy for the effort in the years ahead to curb the greenhouse gases that are blamed for global warming.
Europe’s struggles, for instance, pushed Enel Green Power, one of the world’s largest electricity generators from renewable sources like wind and solar, to explore markets like Brazil, Chile and Mexico, that may turn out to be a lot more promising than Europe.
The bulk of Enel Green Power’s investments used to be in Europe, especially in Italy, its home, and Portugal and Spain. Now the company is mostly putting its new capital into emerging markets.
It’s a no-brainer. In many emerging economies, demand for power is surging. These countries want to harness power sources like wind or solar — if only so that they can conserve their oil and gas for exports.
Contrary to the practice in much of Europe, where subsidies are used as a lure for renewables projects, developing countries like Brazil often award contracts to build new power capacity through competitions that sometimes pit clean energy against fossil fuels like natural gas and diesel. For instance, Enel Green Power recently won wind power deals in Brazil in bake-offs that included proposals for natural gas-fired stations.
“There was a competitive approach to renewables that we liked a lot,” said Francesco Starace, the company’s chief executive.
Mr. Starace especially likes long-term deals like the ones he has worked out in Mexico with Nissan and Nestlé to build wind farms to supply factories with power. He hopes to replicate this sort of arrangement across emerging markets, including east Africa. These private, one-on-one arrangements are more sustainable, he figures.
“You don’t run the risk of a regulator or a state coming back at you and saying, ‘Guys, the good days are over, now we have to talk about reducing this and that,”’ he said.
Tom Murley, who runs two funds with more than $1 billion in renewable energy investments at HgCapital, a private equity firm based in London, takes a similar approach but closer to his home base.
His great enthusiasm at the moment is building wind farms in Sweden anchored by a large €180 million, or $235 million, array north of Stockholm called Havsnäs that opened in 2010. Mr. Murley likes Sweden because it has very windy sites that mean his wind turbines spin faster and more often than those elsewhere, producing more electricity to help pay off their construction costs.
He also likes Sweden’s low-subsidy regime, which is less tempting for a regulator to cut.
“The closer you are to the wholesale price of power, the less you are at risk,” he said. He is also investing in onshore wind projects in Ireland, where the operating environment resembles that of Sweden.
Mr. Murley avoids offshore wind, which requires huge subsidies to make economic sense. He is also veering away from solar projects at the moment for similar reasons. Spain, where he made a large earlier commitment to solar, has cut its subsidies, sharply reducing returns and leading to lawsuits from operators, including HgCapital.
The goal of the renewables business, Mr. Murley said, should be to be competitive eventually on costs with other energy sources and not to rely on subsidies. He also believes in building businesses like his clusters of Swedish wind farms that have the scale to engage a team of managers and the clout to cut better deals with suppliers. His organization tries to buy turbines and other equipment that are reliable rather than cheap and does not skimp on spending money on maintenance.
Renewable energy, he said, “should be run like any other manufacturing business; it is best to be a low-cost producer.”
Both approaches seem to be working. Enel Green Power, which is 68 percent owned by Enel, the big Italian utility, has seen returns through stock appreciation and dividend of about 26 percent over the past year. The stock price had plummeted earlier, along with that of many other renewables companies.
As a private organization, Mr. Murley’s company has returns that are harder to divine, but he says he has sold projects, including a British wind farm business, representing about one-third of the investments by his first €300 million fund for about €225 million.
And both organizations are still investing. Enel Green Power in particular plans to spend €6.1 billion over the next four years. That is good news at a time when carbon dioxide in the atmosphere has reached the highest levels in millions of years.
Sounding the alarm about greenhouse gases and global warming is fine, but money is required to do something about the problem. And it is not likely to be forthcoming without competitive returns.