Renewable energy technologies often face high upfront costs, making financing conditions highly relevant. Thus far, the dynamics of financing conditions are poorly understood. Here, we provide empirical data covering 133 representative utility-scale photovoltaic and onshore wind projects in Germany over the last 18 years. These data reveal that financing conditions have strongly improved. As drivers, we identify macroeconomic conditions (general interest rate) and experience effects within the renewable energy finance industry. For the latter, we estimate experience rates. These two effects contribute 5% (photovoltaic) and 24% (wind) to the observed reductions in levelized costs of electricity (LCOEs). Our results imply that extant studies may overestimate technological learning and that increases in the general interest rate may increase renewable energies’ LCOEs, casting doubt on the efficacy of plans to phase out policy support.
Access optionsAccess options
Subscribe to Journal
Get full journal access for 1 year
only $5.17 per issue
All prices are NET prices.
VAT will be added later in the checkout.
Rent or Buy article
Get time limited or full article access on ReadCube.
All prices are NET prices.
Publisher’s note: Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
IPCC: Summary for Policymakers. In Climate Change 2014: Mitigation of Climate Change (eds Edenhofer, O. et al.) (Cambridge University Press, 2014).
Climate Finance in 2013-14 and the USD 100 Billion Goal (OECD & CPI, 2015).
Polzin, F. Mobilizing private finance for low-carbon innovation – A systematic review of barriers and solutions. Renew. Sustain. Energy Rev. 77, 525–535 (2017).
Perspectives for the Energy Transition – Investment Needs for a Low-Carbon Energy System (OECD/IEA & IRENA, 2017).
Williams, J. H. et al. 2050: the pivotal role of electricity. Science 335, 53–60 (2012).
Chu, S. & Majumdar, A. Opportunities and challenges for a sustainable energy future. Nature 488, 294–303 (2012).
Schmidt, T. S. Low-carbon investment risks and de-risking. Nat. Clim. Change 4, 237–239 (2014).
Hirth, L. & Steckel, J. C. The role of capital costs in decarbonizing the electricity sector. Environ. Res. Lett. 11, 114010 (2016).
2017 Annual Technology Baseline (National Renewable Energy Laboratory, 2017).
Ondraczek, J., Komendantova, N. & Patt, A. WACC the dog: The effect of financing costs on the levelized cost of solar PV power. Renew. Energy 75, 888–898 (2015).
Iyer, G. C. et al. Improved representation of investment decisions in assessments of CO2 mitigation. Nat. Clim. Change 5, 436–440 (2015).
Creutzig, F. et al. The underestimated potential of solar energy to mitigate climate change. Nat. Energy 2, 17140 (2017).
Shrimali, G., Nelson, D., Goel, S., Konda, C. & Kumar, R. Renewable deployment in India: Financing costs and implications for policy. Energy Policy 62, 28–43 (2013).
Trancik, J. et. al. Technology Improvement and Emissions Reductions as Mutually Reinforcing Efforts: Observations from the Global Development of Solar and Wind Energy (MIT, 2015).
Nemet, G. F. Beyond the learning curve: factors influencing cost reductions in photovoltaics. Energy Policy 34, 3218–3232 (2006).
Bolinger, M. & Wiser, R. Understanding wind turbine price trends in the US over the past decade. Energy Policy 42, 628–641 (2012).
Hall, S., Foxon, T. J. & Bolton, R. Investing in low-carbon transitions: energy finance as an adaptive market. Clim. Policy 17, 280–298 (2017).
Brunnschweiler, C. N. Finance for renewable energy: An empirical analysis of developing and transition economies. Environ. Dev. Econ. 15, 241–274 (2010).
Best, R. Switching towards coal or renewable energy? The effects of financial capital on energy transitions. Energy Econ. 63, 75–83 (2017).
Best, R. & Burke, P. J. Adoption of solar and wind energy: The roles of carbon pricing and aggregate policy support. Energy Policy 118, 404–417 (2018).
The Impact of Risks in Renewable Energy Investments and the Role of Smart Policies (Ecofys, 2016).
Mapping the Cost of Capital for Wind and Solar Energy in South Eastern European Member States (Ecofys, 2017).
Jacobsson, S. & Lauber, V. The politics and policy of energy system transformation - explaining the German diffusion of renewable energy technology. Energy Policy 34, 256–276 (2006).
Steffen, B. The importance of project finance for renewable energy projects. Energy Econ. 69, 280–294 (2018).
Gatti, S. Project Finance in Theory and Practice: Designing, Structuring, and Financing Private and Public Projects (Academic Press, Waltham, 2013).
Damodaran, A. Equity risk premiums (ERP): determinants, estimation and implications - The 2016 Edition. SSRN Electron. J. https://doi.org/10.2139/ssrn.2742186 (2016).
Eisenhardt, K. M. & Graebner, M. E. Theory building from cases: opportunities and challenges. Acad. Manag. J. 50, 25–32 (2007).
Jiménez, G., Ongena, S., Peydró, J. L. & Saurina, J. Credit supply and monetary policy: Identifying the bank balance-sheet channel with loan applications. Am. Econ. Rev. 102, 2301–2326 (2012).
Borio, C. & Zhu, H. Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism? J. Financ. Stab. 8, 236–251 (2012).
Altunbas, Y., Gambacorta, L. & Marques-Ibanez, D. Does monetary policy affect bank risk? Int. J. Cent. Bank 10, 95–135 (2014).
Huenteler, J., Schmidt, T. S., Ossenbrink, J. & Hoffmann, V. H. Technology life-cycles in the energy sector - Technological characteristics and the role of deployment for innovation. Technol. Forecast. Soc. Change 104, 102–121 (2016).
Pahle, M. & Schweizerhof, H. Time for tough love: towards gradual risk transfer to renewables in Germany. Econ. Energy Environ. Policy 5, 117–134 (2016).
May, N. G. & Neuhoff, K. Financing Power: Impacts of Energy Policies in Changing Regulatory Environments DIW Berlin Discuss. Pap. No. 1684 (German Institute for Economic Research, Berlin, Germany, 2017).
Neuhoff, K. Large-scale deployment of renewables for electricity generation. Oxford Rev. Econ. Policy 21, 88–110 (2005).
Nelson, D. in Renewable Energy Finance: Powering the Future (ed. Donovan, C. W.) 273–305 (Imperial College Press, London, 2015).
Yelle, L. E. The learning curve: historical review and comprehensive survey. Decis. Sci. 10, 302–328 (1979).
Qiu, Y. & Anadon, L. D. The price of wind power in China during its expansion: Technology adoption, learning-by-doing, economies of scale, and manufacturing localization. Energy Econ. 34, 772–785 (2012).
Rubin, E. S., Azevedo, I. M. L., Jaramillo, P. & Yeh, S. A review of learning rates for electricity supply technologies. Energy Policy 86, 198–218 (2015).
Wright, T. P. Factors affecting the cost of airplanes. J. Aeronaut. Sci. 3, 122–128 (1936).
Elton, E. J., Gruber, M. J., Agrawal, D. & Mann, C. Explaining the rate spread on corporate bonds. J. Finance 56, 247–277 (2001).
Renewable Power Generation Costs in 2017 (IRENA, 2018).
Lehmann, P. & Söderholm, P. Can technology-specific deployment policies be cost-effective? The case of renewable energy support schemes. Environ. Resour. Econ. 71, 475–505 (2018).
Geddes, A., Schmidt, T. S. & Steffen, B. The multiple roles of state investment banks in low-carbon energy finance: An analysis of Australia, the UK and Germany. Energy Policy 115, 158–170 (2018).
Tietjen, O., Pahle, M. & Fuss, S. Investment risks in power generation: A comparison of fossil fuel and renewable energy dominated markets. Energy Econ. 58, 174–185 (2016).
Campiglio, E. et al. Climate change challenges for central banks and financial regulators. Nat. Clim. Change 8, 462–468 (2018).
Renewable Capacity Statistics 2017 (IRENA, 2017).
Definition und Marktanalyse von Bürgerenergie in Deutschland (Trend Research, 2013).
Chatham House Rule (Chatham House, 2002).
Hoppmann, J., Peters, M., Schneider, M. & Hoffmann, V. H. The two faces of market support—How deployment policies affect technological exploration and exploitation in the solar photovoltaic industry. Res. Policy 42, 989–1003 (2013).
Asset Database (BNEF, 2017).
Long-Term Interest Rate Statistics for EU Member States (European Central Bank, 2018).
Global Trends in Renewable Energy Investment 2017 (Frankfurt School-UNEP & BNEF, 2017).
Eisenhardt, K. M. Building theories from case study research. Acad. Manag. Rev. 14, 532–550 (1989).
Statutory Corporate Income Tax Rate (OECD, 2018).
Walker, D. & Myrick, F. Grounded theory: An exploration of process and procedure. Qual. Health Res. 16, 547–559 (2006).
Glaser, B. G. Emergence vs Forcing: Basics of Grounded Theory Analysis (Sociology Press, Mill Valley, CA, USA, 1992).
Nordhaus, W. D. The perils of the learning model for modeling endogenous technological change. Energy J. 35, 1–14 (2014).
Lindman, Å. & Söderholm, P. Wind power learning rates: A conceptual review and meta-analysis. Energy Econ. 34, 754–761 (2012).
Miles, I. Patterns of innovation in service industries. IBM Syst. J. 47, 115–128 (2008).
Elche-Hotelano, D. Sources of knowledge, investments and appropriability as determinants of innovation: An empirical study in service firms. Innov. Manag. Policy Pract. 13, 224–239 (2011).
Huenteler, J., Niebuhr, C. & Schmidt, T. S. The effect of local and global learning on the cost of renewable energy in developing countries. J. Clean. Prod. 128, 6–21 (2016).
The authors thank M. Jäger, M. Pahle, F. Polzin, L. Reile and O. Tietjen from the INNOPATHS project, participants of the 2017 oikos Finance Academy at the University of Zurich, participants of the 41st IAEE International Conference in Groningen (2018) and members of ETH Zurich’s Energy Politics Group for helpful comments on earlier drafts of the paper. This work was supported by the Swiss State Secretariat for Education, Research and Innovation (SERI) under contract number 16.0222. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Swiss Government. This work was conducted as part of the European Union’s Horizon 2020 research and innovation programme project INNOPATHS under grant agreement no. 730403.
About this article
Nature Communications (2019)