Interest rates are a decisive factor for competitive renewables

**Interest rates are a decisive factor for competitive renewables
As renewable energy is more capital-intensive than fossil fuels, the costs rise more sharply with rising interest rates, making it less attractive. Credit: Shutterstock

Renewable energy has become competitive—and one often-overlooked reason is the reduced cost of financing. Researchers from ETH Zurich and the Potsdam Institute for Climate Impact Research (PIK) have modeled different scenarios in order to investigate the impact of rising interest rates on renewable energy.

Renewable energy is an essential part of efforts to reduce CO2 emissions. Without it—according to all the climate scenarios—the Paris Agreement's target of limiting global warming to below 2 degrees C relative to the pre-industrial age will not be achieved.

Policymakers have therefore introduced various support measures for , in particular in the EU—and not without success: the generation of alternative energy in many European countries today are comparable with the (marginal) costs of existing gas or coal-fired power stations.

The last two years have seen the widespread emergence of photovoltaic plants that can survive and hold their own on the market without subsidies—for example, in Spain and Germany. Green electricity's new-found competitiveness is based on more mature technology and higher volumes, which bring down costs.

In addition—and this is often overlooked—the low cost of capital has also played its part, as low interest rates boost the economic viability of alternative energy sources.

Lower costs thanks to low interest rates

But what happens if interest rates rise? ETH researchers have explored this question in two studies. As renewable energy is more capital-intensive than fossil fuels, the costs rise more sharply with rising interest rates, making it less attractive. "Renewable energy is now very cheap, but that won't necessarily be the case with higher interest rates," says Tobias Schmidt, Professor of Energy Politics.

According to Schmidt, analysis of 133 photovoltaic and onshore wind projects in Germany over the last 18 years shows that—in the case of wind power, for example—lower financing costs account for about 25 percent of the savings in electricity-production costs (see article in Nature Energy).

"Renewable energy has become cheaper—thanks in part to significant improvements in financing conditions," says Bjarne Steffen, co-author of the study. Conversely, rising financing costs will lead to disproportionate increases in the price of renewable energy.

Less attractive with rising interest rates

In a study published today in Nature Sustainability, the ETH researchers calculated various interest rate scenarios in collaboration with a team from the Potsdam Institute for Climate Impact Research (PIK). If interest rates were to return to pre-crisis levels, electricity production costs in Germany would increase by 11 percent for solar power plants and 25 percent for wind power projects—with a knock-on impact on competitiveness.

In a scenario involving a moderate rise in interest rates, the lower costs of solar power plants due to advances in knowledge and technology would be offset by higher interest charges. For wind , it is estimated that electricity generation costs would increase by 9 percent in such a scenario.

Auctions should be retained

The ETH and PIK researchers believe that abolishing the instruments for alternative energy, as is currently being considered in the EU, would be a risky strategy. In the event of rising interest rates, it would have a counterproductive effect and jeopardize the reduction in CO2 emissions needed from a climate perspective.

"The positive trend in renewable energy is not something we should gamble with," says Schmidt, who advocates continued adherence to market-based instruments, such as auctions for large-scale plants to generate renewable energy.

This should ensure that projects are awarded to the most competitive provider. As long as interest rates stay at a low level, renewables will therefore remain subsidy-free.

The authors of the study are also in favor of a minimum price for emissions certificates under the European emissions trading system. This would accelerate the shift from to renewable energy by excluding price collapses for climate-damaging CO2 emissions in future. Higher financing costs would then be less likely to jeopardize the transition to renewable .


Explore further

How much energy storage costs must fall to reach renewable energy's full potential

More information: Florian Egli et al. A dynamic analysis of financing conditions for renewable energy technologies, Nature Energy (2018). DOI: 10.1038/s41560-018-0277-y

Adverse effects of rising interest rates on sustainable energy transitions. Nature Sustainability, 9 September 2019, DOI: 10.1038/s41893-019-0375-2

Journal information: Nature Energy , Nature Sustainability

Provided by ETH Zurich
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Sep 10, 2019
the generation costs of alternative energy in many European countries today are comparable with the (marginal) costs of existing gas or coal-fired power stations.


Nice semantic magic trick there.

Most people don't understand what marginal cost means. In simple terms, it's the cost of producing one more of something, such as producing one more megawatt of power.

The marginal cost even for a cheap technology can be very high. If you have a cheap 1000 MW power plant running at full output, and you want to make 1 MW more, you can't without building another 1000 MW power plant - which costs a lot - or you can build a mini 1 MW unit which costs more per MW. Either way, the marginal cost seems to suggest that it's not sensible to build more.

But if you need 1000 MW more, then the cost of the 1000 MW unit is justified, and the marginal cost is low. The trick is that you can choose the marginal unit size arbitrarily, and renewable generators come in small units.

Sep 10, 2019
"Renewable energy is an essential part of efforts to reduce CO2 emissions."
Solar and wind are grotesque fiascos at reducing emissions / dependence on coal/oil/gas.
"Renewables are the fastest growing sources of electricity. Yet the increase in CO2 accelerates? When will people appreciate what's wrong here?"
http://pbs.twimg....RC7A.jpg
"The ones that went with nuclear and hydro decarbonized. The ones that went with wind and solar failed and keep failing."
"While nuclear and hydro are strongly correlated with decarbonization of energy at aggregated national levels, solar and wind are not."
http://pbs.twimg....1tl_.jpg

"Renewable energy has become cheaper—thanks in part to..."
cheap renewables = 80% cheap coal/oil/gas + 20% intermittent renewables
"Unreliable Nature Of Solar And Wind Makes Electricity More Expensive, New Study Finds"
https://epic.uchi...-deliver

Sep 10, 2019
Eikka
Most people don't understand what marginal cost means. In simple terms, it's the cost of producing one more of something, such as producing one more megawatt of power
Could you support that assertion with some links? I show the marginal cost of electricity to be
Marginal cost of generation ($/MWh) = Marginal cost of Fuel + Variable operations and maintenance costs
from - https://www.e-edu...node/584

As usual - by saying stuff like "nice semantic magic trick there" - Eikka is trying to imply monkey business - when it seems that 'marginal cost' - is a pretty standard concept - used in the electricity industry.

Natural monopolies exist precisely because average total cost will always be above marginal cost

Sep 10, 2019
When will people appreciate what's wrong here?
I think that depends on how bad pollution, and climate change become. The transition is under way - but we agree that it is glacially slow. We have to pry the control box out of the hands of the fossil fuel industry. Renewables are picking up their pace - but it is still too little too late. Hopefully exponential growth will kick in - I am optimistic about the possibility - but not the reality we are seeing on the ground. Tesla just announced their million mile battery will go into production next year. One drip at a time - the land scape is changing.

Sep 11, 2019
...The transition is under way...
People is already appreciating that there is something wrong with the so-called cheap(heavily-subsidized/batteries-not-included/buy-your-own-gasoline-diesel-generator-stupid) renewables.
"Solar panels: Thousands of customers complain" - Sep 9, 2019
http://www.bbc.co...49566130
"ABC: Solar panels in Australia only lasting 3 to 9 years ABC"
http://www.youtub...lzUhitx8
""Renewables" are like a parasite on the economy. Too many and they kill the host."
"People who don't have roof-top solar" are paying for other people's rooftop solar"

"If solar + wind is cheaper, why is coal use increasing?"
http://www.linked...-poljak/
"The more you know about renewables, the less you like them. The more you know about nuclear, the more you like it. The only thing holding us back is ignorance, superstition and fear of the unknown."

Sep 11, 2019
The more you know about renewables, the less you like them. The more you know about nuclear, the more you like it
So why are we installing so many wind turbines and solar farms, and NOT installing so many nukes. Oh right Willie - cuz renewables make more sense financially - which is what today's article is all about - and what many experts agree on
energy supply will peak in 2030 and renewables will account for 80 percent of the electricity mix in 2050
https://www.green...s.36spag

Sep 12, 2019
...So why are we installing so many wind turbines and solar farms...
So many heavily-subsidized wind turbines and solar farms (bird-choppers/land-intensive monstrosities) only makes sense as 'decorative facades' to keep the expansion of the gas(fracking) industry over hydro and carbon-free nuclear, a crime in the face of Climate Change.

"Natural gas and renewable energy work great on their own but better together. Kind of like a peanut butter and jelly sandwich. Watch how." - ExxonMobil
https://twitter.c...57258240

...energy supply will peak in 2030 and renewables will account for 80 percent of the electricity mix in 2050...
If by "renewables" you mean "80% natural gas + 20% intermittent renewables" you're correct.

Sep 12, 2019
So many heavily-subsidized wind turbines and solar farms
Well when you subsidize every other energy source - it would be hypocritical to not subsidize wind and solar. But the subsidies in the U.S. are phasing out - and it is well understood that even without subsidies - wind and solar will be able to hold their own in the market place - and as the costs keep coming down - nothing else will be able to touch them. Liar Willie cannot say that about nukes - cuz they are begging for gubermint hand outs - at every turn - and will never be cost competitive.
Is [nuclear power] dying under its own weight? Yeah, probably," said Granger Morgan, professor of engineering and public policy at Carnegie Mellon University
https://fivethirt...handout/

Sep 13, 2019
subsidize every other energy source
Without subsidized coal/oil/gas, poor people freeze in the dark, mainly during the Winter when energy is most needed and sunshine&breeze unicorn energy is on vacation.
Ban solar/wind and no one will ever notice the difference except in the electricity bills that will become more affordable without these expensive useless placebos, bird-choppers/land-intensive monstrosities backed up by fossil fuels.

"wind and solar will be able to hold their own in the market place" thanks to cheap fracked gas, stupid.
Ban cheap gas and wind/solar dies.

Is carbon-free nuclear dying? Yes thanks to faux-greens and their Eco-hypocritical energy solution(bird-choppers/land-intensive monstrosities backed up by coal/oil/gas to compensate intermittencies).

But but is carbon-free nuclear really dying? No.
"China has 50 nuclear plants under construction and nearly 200 additional units in the planning stage"
"China is a net exporter of solar panels / wind turbines."

Sep 13, 2019
Without subsidized coal/oil/gas, poor people freeze in the dark
Wow - talk about the ability to rationalize bull shit. So if we subsidize renewable energy - that is evil - but if we subsidize oil and gas - that is keeping old people alive.

Ban cheap gas and wind/solar dies
Liar. But why don't you show us an example. Where have they banned cheap gas - and wind/solar has died. Go ahead Willie - show us the example - or are you a stupid liar?

Sep 14, 2019
...But why don't you show us an example. Where have they banned cheap gas - and wind/solar has died...
Your turn: show us an example where wind/solar is alive supplying at least 1/3(~30%) without cheap coal/oil/gas/fracking.
Oklahoma: >70% cheap coal/gas;
Costa Rica: >90% hydro;
Scotland: connected to UK fossil-fueled grid;
Denmark, Germany, South Australia, California, etc.: cheap coal/gas.

Apply carbon tax and wind/solar dies.
"Germany is blocking the price of carbon. Why? Because it will increase the price of electricity from renewables backed up by natural gas. And will increase competitiveness of nuclear power from France."
http://pbs.twimg....rmat=jpg
"A carbon tax will kill renewable deployment because it will increase the price of natural gas which is a backup for RE. But it will make nuclear power immediately profitable. This is why a lot of "greens" are really against it deep in their hearts."
http://pbs.twimg....D91s.jpg

Sep 14, 2019
Willie said
Ban cheap gas and wind/solar dies
I asked for an example. In other words - support your assertion with actual facts. What was the reply? Crickets chirping - and a deflection on to a different question.

Liar Willie relentlessly exposed.

Sep 15, 2019
Let's take a look at reality:
"Despite the rapid growth of renewables last year, oil went up, gas use went up, coal use went up and carbon emissions went up." - Jason Bordoff
http://edition.cn...dex.html
"The renewable miracle: gas up, coal up, oil up, emissions up, prices up, disconnections up. At least reliability is down!"
http://pbs.twimg....rmat=jpg

Propagandized as cheap powerful tools to stop Climate Change, the Eco-friendly bird-choppers/land-intensive monstrosities have been proven to be a scam, they have only existed to steal taxpayers' money.

"Emissions of Sulphur Hexafluoride (SF6) have risen dramatically in recent years partly due to renewable energy"
http://www.bbc.co...49567197
"More evidence that renewable energy increases warming, this time because of the growing use of SF6, gas with 23,500x the warming potential of CO2, in wind turbines and substations."

Sep 15, 2019
This comment has been removed by a moderator.

Sep 15, 2019
"But renewables did go up!" At cost of trillions of dollars and huge ecological impacts/environmental damages with nothing to show at reducing emissions / dependence on coal/oil/gas.
"The ones that went with nuclear and hydro decarbonized. The ones that went with wind and solar failed and keep failing."
"While nuclear and hydro are strongly correlated with decarbonization of energy at aggregated national levels, solar and wind are not."
"If you look around a little http://electricitymap.org , you will quickly notice that countries with low CO2 emissions create this with a lot of hydropower, with a lot of nuclear energy or with a lot of both."

Low quality/unreliable products are usually cheap.

show us where gas has been banned - and wind and solar have died
Poor people die if coal/oil/gas were banned. If solar/wind were banned, no one will ever notice the difference except in the electricity bills more affordable without these bird-choppers, fossil-addicted-parasites.

Sep 15, 2019
By the time we are done in 2030, my prediction is that Saudi Arabia will be somewhere at 55%-60% [powered by renewables
Saudi Arabia? One of largest oil producer.
No doubt intermittent renewables are 'boutique facades' for the coal, oil, gas, fracking producers.
Let's face the reality: intermittent renewables are in bed with oil/gas/fracking producers.
https://pbs.twimg...ide0.jpg

"The gas industry is extremely supportive of renewables because they get to build gas plants to back up the unreliable renewables. Renewables are a huge wind for the fossil fuel producers. Nobody backs renewables more than gas producers."
https://pbs.twimg...hm1t.jpg
Who benefits the most from the "renewable energy revolution?"
A: coal and natural gas producers.
"Solar / wind promoters are in bed with coal / natural gas producers. That's why almost everybody opposes nuclear. That is why Germany decided to eliminate nuclear, NOT coal. "

Sep 15, 2019
Saudi Arabia? One of largest oil producer
Yes Willie - Saudi Arabia - as per your own link. The Saudi's see the writing on the wall. They want to get in on the transitions early - which leaves more oil to sell to stupid countries - who don't see what is happening. It is called the profit motive.

Who benefits the most from the "renewable energy revolution?
We all will. Right now we can't get the hands of the fossil fuel profiteers off the system. It is going way too slowly - but a lot of that is down to jerks like Willie - who don't care how many die early deaths, or how much we heat up our planet.

22 hours ago
...which leaves more oil to sell to stupid countries...
China, one of largest manufacturer of wind/solar components thanks to cheap coal, is building carbon-free nuclear plants which leave more solar panels/windmills(useless placebos) to sell to stupid countries to act as 'boutique facades' for their oil/gas industries.
Oh! take a look; it's amazing, an solar powered oil rig:
https://pbs.twimg...rmat=png

By logic, countries more interested in alternative energy should be those with no coal/oil/gas/fracking resources, but on the contrary they are more interested in carbon-free nuclear to lift their people out of energy poverty.
Countries more interested in solar/wind are exactly the ones with vast reserves of coal/oil/gas/fracking in order to act as 'facades' for their fossil industries.

10 hours ago
China, one of largest manufacturer of wind/solar components thanks to cheap coal
How do you conclude that it is thanks to cheap coal? That's a really stupid assertion. China fully understands the need to wean itself off of coal.
The report points out that China has taken a lead in renewable energy and is now the world's largest producer, exporter and installer of solar panels, wind turbines...
- https://www.forbe...ba08745a

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