IRENA - The cost of financing for renewable power

Based on a new, unique dataset from a global survey, this IRENA report presents unprecedented insights on the cost of capital for onshore wind, offshore wind and solar photovoltaic (PV) projects.

The cost of capital (CoC) for renewable power generation technologies is a major determinant of the total price to purchasers of renewable electricity. Both reliable data, and a deep understanding of the composition of the CoC and its drivers, are therefore critical information. Crucially, even small differences in the CoC that are not properly accounted for can result in misleading cost calculations and lead to poor policy making.

This IRENA report presents new cost of capital data, obtained from an expert survey and interviews covering all major regions for onshore wind, offshore wind and solar photovoltaic (PV). The coverage of this survey is believed to be unprecedented in terms of its geographical and technological breadth; as such, the results may represent the most wide-ranging database on renewable energy financing available today.

The report fills a key information gap by providing greater understanding of the composition of the CoC and its drivers to assist policy makers in developing effective approaches to support the energy transition that reflect technology and country risks, and help support energy analysts/modellers seeking accurate cost estimates.

In addition to the report, the associated Data appendix features cost of capital data for solar PV, onshore and offshore wind for 100 countries, benchmarked from the survey data.

Download The cost of financing for renewable power IRENA report



Key insights

The cost of capital (CoC) for renewables matters. The CoC is a major determinant of the total price to purchasers of electricity from renewable power generation technologies. If assumptions used for the CoC are not accurate – over time, between countries or technologies – then the cost of electricity might be significantly misrepresented and result in poor policy making.
A comprehensive database on renewable energy financing. This IRENA report presents new CoC data, obtained from an expert survey and interviews covering all major world regions for onshore wind, offshore wind and solar photovoltaic (PV). The coverage of this survey – both in terms of geography and technology – is believed to be among the most wide-ranging of any existing database on renewable energy financing.

Material differences exist in the CoC across countries and technologies. The weighted average CoC obtained through a survey of experts in 45 countries varied from as little as 1.1% (onshore wind in Germany) to above 10% (solar PV in Ukraine), all in nominal terms, for the period 2019-2021. The regional average CoC in mature markets across the three renewable energy technologies
considered (4.4% in Europe and 5.4% in North America) is lower – sometimes considerably lower – than in emerging markets, for instance, in the Asia-Pacific region (5.6%) or Latin America (6.9%). Rates in the Middle East and Africa are the highest, at 8.2% on average. In general, across regions, the CoC for the renewables covered in this report is 200-300 basis points above the country risk.

There is no single value for the CoC within a market for a given technology. The survey results revealed that in individual markets the CoC for a given technology varied, sometimes significantly, across respondents. For solar PV in Spain, for instance, the CoC ranged from 36% below to 72% above the average, while for Italy the range was from 43% below to 44% above. The CoC depends on the developer, offtake arrangements and other project-specific factors.

The survey and interviews are part of an integrated, three-pronged approach to collecting data on the CoC. Where survey and interview data are absent, a benchmark tool may be used to estimate the CoC for various technologies. This allows updated CoC estimates to be generated as underlying base rates change in response to macroeconomic conditions. Combining several data sources
and expert elicitation approaches allows for the derivation of robust CoC values across the widest possible range of countries.

A benchmark tool to calculate country- and technology-specific CoC values can yield robust estimates after calibration with survey data. The CoC estimates generated by the CoC benchmark tool developed for this project provided reasonably robust estimates of the CoC for renewable power generation technologies in different markets. However, technology and market drivers in some
countries are inevitably at variance to a simple benchmark tool value. Calibrating the benchmark tool with findings from the stakeholder survey greatly improves the tool’s results, but further work to refine this process is warranted.

Before the crisis in Ukraine, experts expected a slight decline in the CoC by 2025. In most regions, the CoC was expected to decline slightly or stay constant from 2019-2020 to 2025 in nominal terms, but this will depend on (among other things) the inflation situation in 2025. Experts anticipate the sharpest decline for offshore wind in the Asia-Pacific and solar PV in Europe, and the Middle East
and Africa (all above 100 basis points). Differentiated CoC data improve energy and climate modelling as well as our understanding of cost drivers, and support better policy making. The results from this survey can be used by policy makers, research institutions, energy and climate modellers, and other stakeholders to re-calibrate and verify renewable energy cost estimates. The survey results also improve our understanding of the drivers of the cost of financing and their interactions with one another, a topic previously supported more by anecdotal evidence than a systematic examination.

More work on this topic needs to be done. The survey produced substantive estimates of the CoC in active markets with liquid capital markets. Survey response rates were, however, often lower in smaller markets. More data for these markets would help improve CoC estimates. Regular additional surveys are also needed to track the changing financing drivers in emerging markets to avoid over
or under-estimating the CoC, and also to reflect the impact of policy changes and macroeconomic developments. Finally, addressing unique policy questions (e.g. what can policy makers do to reduce CoC premiums in emerging markets?) requires a specific survey design and engagement with stakeholders, and would add additional insights.