Solar Capital Cost 11 Times Higher In Developing Countries: IEA Report

Solar Capital Cost 11 Times Higher In Developing Countries: IEA Report

A recent report by the International Energy Agency (IEA) finds that the cost of capital, required to make investment in solar energy in developing economies to be high. The report attributed this to the challenges such as, cost of capital in developing economies, less developed capital markets, fewer projects, and a lack of transparency around risks.

Based on the data from on the cost of capital for clean energy projects in emerging and developing economies, the report mentions that, based on the data, the cost of capital in emerging and developing economies is challenging due to relatively less developed capital markets. It adds that other factors, such as fewer projects and a lack of transparency around risks, also make finding data on capital challenging.

The report collected data on the cost of capital for clean energy projects in emerging and developing economies. It finds that the result is that utility-scale gas-power projects are perceived as an equal or riskier investment than utility-scale solar PV projects. The report, based on the responses of utility-scale batteries for projects taking FID in 2022, found that the WACC for batteries was higher or equal to that of solar PV projects.

Risks that need to be addressed first to reduce the cost of capital in selected economies.

This year’s survey also shows that nine out of 10 respondents expect increases in the cost of capital in emerging and developing economies in 2023. However, some associated risks that the report reveals that investors and financiers face are political, currency, regulatory, off-taker, and transmission risks. These are the five key risks that should be addressed first to achieve reductions in the cost of capital in emerging and developing economies.

The report finds some risk of high costs, such as the high cost of capital in emerging and developing economies, coupled with anticipated increases in 2023. It suggests ongoing challenges in accessing affordable financing for clean energy projects in the parts of the world that will face this challenge the most.

The report finds that borrowing costs are now high in most parts of the world, aside from China. On the contrary, in case of US financing costs, interest rates have increased 11 times since March 2022. Whereas, in developing economies, the costs are at least two times higher.