L R AS Published on Monday 8 May 2023 - n° 444 - Categories:the manufacturers, funding
The cost of financing worldwide according to IRENA
IRENA has published a unique report on the cost of financing renewable energy, covering solar photovoltaic, onshore and offshore wind technologies in all major world markets.
The International Renewable Energy Agency (IRENA) has published new data on the cost of capital for solar photovoltaic, onshore and offshore wind between 2020 and 2021. The results show that Germany and the Netherlands have the lowest cost of capital in Europe at 2.2%, while the United States, China, India and Australia have values of 5.4%, 3.9%, 7.1% and 4.6% respectively.
The cost of capital expresses the expected financial return, or the minimum rate required, to invest in a company or project. It is calculated as the weighted average of the cost of debt and the cost of equity. The cost of debt is the interest rate that a project guarantees to lenders. The cost of equity is the financial return expected by shareholders in exchange for the capital contribution.
The cost of capital is a major determinant of the discounted cost of electricity (LCOE) for solar photovoltaics and other renewable energies. According to IRENA, the total cost of electricity for a representative PV project increases by 80% if the cost of capital (CoC) is 10% rather than 2%.
The good results from China, North America and Western Europe are underlined by a mature PV market, according to IRENA.
The agency also noted that the share of debt in CoC is low in North America and Western Europe, but for different reasons. In the US, the share of debt is generally low, between 35% and 65%, because "the tax credits used to accelerate solar and wind deIn the United States, the proportion of debt is generally low, at between 35% and 65%, because "the tax credits used to accelerate solar and wind deployment encourage the use of equity capital", the costs of which are nonetheless low because of the tax credits, IRENA explained. In Europe, the share of debt is generally higher, at 80% or more, but the cost of debt is very low due to the banking sector's low base rates.
PV Magazine of 4 May 2023
