Renewable energy technologies often face high upfront costs, making financing conditions highly relevant. Thus far, the dynamics of financing conditions are poorly understood. Here, we provide empirical data covering 133 representative utility-scale photovoltaic (PV) and onshore wind projects in Germany over the last 18 years. These data reveal that financing conditions have strongly improved. As drivers, we identify macroeconomic conditions (general interest rate) and experience effects within the renewable energy finance industry. For the latter, we estimate experience rates. These two effects contribute 5% (PV) and 24% (wind) to the observed reductions in levelised costs of electricity (LCOEs). Our results imply that extant studies may overestimate technological learning and that increases in the general interest rate may increase renewable energies' LCOEs, casting doubt on the efficacy of plans to phase out policy support.
Increasing the use of renewable energy (RE) is a key enabler of sustainable energy transitions. While the cost of RE have substantially declined in the past, here we show that rising interest rates can reverse the trend of decreasing RE costs, particularly in Europe with its historically low interest rates. In Germany, interest rates recovering to pre-financial crisis levels within 5 years could add 11% and 25% to the levelized cost (LCOE) of solar PV and wind onshore, respectively, with financing costs accounting for roughly one-third of total LCOE. As fossil fuel-based electricity costs are much less and potentially even negatively affected by rising IRs, the viability of RE investments would be markedly deteriorated. Based on these findings, we argue that rising interest rates could jeopardize the sustainable energy transition and propose a self-adjusting thermostatic policy strategy to safeguard against rising interest rates. The Energy Politics Group (EPG) within the Department of Humanities, Social, and Political Sciences of ETH Zurich investigates questions related to the governance of technological change in the energy sector.
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