Global | Cost of Capital, Renewables and Cleantech

Summary

The cost of capital is vital for renewable energy projects due to high investment needs, policy uncertainty, and early-stage risks. De-risking strategies can lower costs, particularly in developing economies. However, for emerging cleantech, these strategies must balance innovation and competition.

Key points

• Key points:
• The cost of capital is crucial for clean energy projects due to their high upfront investment and low operating costs. In emerging markets and developing economies, the cost of capital for projects like solar PV and wind is often more than twice as high as in advanced economies, reducing financial viability and competitiveness.
• The International Energy Agency’s annual survey identifies key risks to address for reducing the cost of capital in emerging economies, categorizing them into two groups: general economic risks (sovereign, political, currency) and specific risks of renewable projects (regulatory, transmission grid, off-taker), with regulatory risks being one of the main concerns.
• To reduce the cost of capital in developing economies, it is needed to set up a clear, long-term energy transition plan with milestones, integrated investment planning, and enhanced institutional capacity. Also, to provide targeted financial and technical support, and expand payment guarantees to reduce risks and attract investment.
• For projects where technological feasibility risk is more significant, each stage of the innovation chain, from the most basic to the closest to commercial development, requires a specific combination of public support, regulations, and private financing.

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