Highest Cost of Financing for RE in Mexico, Egypt & Tunisia, Lowest in Germany: IRENA

IRENA (International Renewable Energy Agency) has released a report entitled ‘The Cost of Financing for Renewable Power’. 

The Cost of Capital (CoC) is a major determinant of the total price to purchasers of electricity from renewable power generation technologies. As per the report, incorrect assumptions for CoC are not accurate, the cost of electricity might be misrepresented, leading to poor policy making.

Varying CoC & Average

The weighted average CoC obtained in 45 countries is greatly varying. For instance, it is 1.1% for onshore wind in Germany to more than 10%  for solar PV in Ukraine, for 2019-2021. The regional average CoC in mature markets across the renewable energy technologies considered (4.4% in Europe and 5.4% in North America) is lower than in developing markets. For instance, in the Asia-Pacific region it is 5.6% or in Latin America, it is 6.9%. In the Middle East and Africa, the rates are highest with 8.2% average.

No Single Value for CoC within Market

The report reveals that there is no single value for the CoC within an individual market for a given technology. The CoC for a given technology differs in an individual market. For example, for solar PV in Spain, the CoC can vary from 36% below average to to 72% above average. In Italy, on the other hand, in Italy, the range can be from 43% below average to 44% above average. The CoC is determined by the developer, offtake arrangements.

Estimates on Decline

Before crisis hit Ukraine, a slight decline in CoC was anticipated by 2025. This, however, will be influenced greatly by inflation in 2025. Experts expect the greatest decline for offshore wind in the Asia-Pacific and solar PV in Europe, as well as the Middle East and Africa, It will be above 100 basis points.

CoC Range & Regional Average

The current CoC ranges from 1.1% to 12%. Countries with a high CoC are Mexico, Egypt and Tunisia. Germany is the country with the lowest financing cost with 1.1% for onshore, 1.4% for solar PV, 2.4% for offshore).
The average of the regional CoC for utility-scale solar PV was 3.9% in China, 6.1% in other Asia-Pacific countries, 4% in Western Europe, 7.7% in Eastern Europe, 8.7% in the Middle East, 6.6% in Latin America and 5.4% in North America. China, North America and Western Europe have low CoC.

The report also notes that “outside the OECD, the CoC is higher, but is still low enough to support competitive renewable
power generation projects”.