With the fall in the costs of renewables deployment between 2015 and 2020, more financing has been made in this sector, a new report by Oxford University Sustainable Finance Program revealed on Monday.
Renewables deployment increased with solar, onshore wind and offshore wind financing costs falling by 20%, 15% and 33% respectively in the period between 2015 and 2020 relative to 2010-2014, the report, the Energy Transition and Changing Financing Costs, showed.
The report, which analyzed how the financing costs for energy projects measured through loan spreads have changed over the past 20 years, found that financial institutions view renewables as less risky than coal while oil and gas financing costs have exhibited significantly less change.
Renewables have seen their loan spreads in the period between 2017 and 2020 fall by an average of 12% for onshore wind and 24% for offshore wind compared to 2007-2010, the report showed.
The speed of the drop in cost of financing for renewables has increased since 2015 with regional differences.
Financing costs for offshore wind in Europe reduced by 39% over this time while reductions of 41%, 14% and 11% for onshore wind were seen in Australia, North America and Europe, respectively.
Solar project financing costs dropped by 32% in North America and 27% in Europe.
"This is good news for the cost of renewables, as financing costs are a key determinant of overall costs. Falling loan spreads for renewables mean these projects will become even cheaper for ratepayers and taxpayers, which is a good thing for rapidly decarbonizing the energy sector," Co-author and Director of the Oxford Sustainable Finance Program, Ben Caldecott, was quoted as saying.
- Coal plant financing costs up by 56% over last decade
In contrast to renewables, the cost of financing coal power and coal mines rose by 56% and 65% respectively during the 2011-2020 period compared to 2000-2010, the report found.
The financing costs for coal mines increased the most in developed countries with loan spreads rising by 80% in North America, 134% in Europe and 71% in Australia over this period.
However, changes to financing costs in oil and gas are much more mixed and have decelerated over the last decade, the report said.
"In terms of oil and gas production, while financing costs worsened if you compare 2000-10 with 2011-20, over the past decade, loan spreads have been largely stable, rising by only 3% for oil and gas production. In fact, loan spreads for certain sub-sectors fell over this period, such as -41% for offshore oil," it said in the report, suggesting that financial constraints on oil and gas have not materialized in the same manner as coal.
"Our findings support the conclusion that they are being priced today; increasing costs for coal and reducing them for renewables. The challenge is that this is not happening evenly and certainly is not occurring at the pace required to tackle climate change. In particular, financing costs will need to rise for oil and gas projects," Caldecott noted.
By Nuran Erkul Kaya