Increasing the use of renewable energy (RE) is a key enabler of sustainable energy transitions. While the costs of RE have substantially declined in the past, here we show that rising interest rates (IRs) can reverse the trend of decreasing RE costs, particularly in Europe with its historically low IRs. In Germany, IRs recovering to pre-financial crisis levels in 5 years could add 11% and 25% to the levelized cost of electricity for solar photovoltaics and onshore wind, respectively, with financing costs accounting for about one-third of total levelized cost of electricity. As fossil-fuel-based electricity costs are much less and potentially even negatively affected by rising IRs, the viability of RE investments would be markedly deteriorated. On the basis of these findings, we argue that rising IRs could jeopardize the sustainable energy transition and we propose a self-adjusting thermostatic policy strategy to safeguard against rising IRs.
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This research was conducted as part of the EU Horizon 2020 research and innovation programme project INNOPATHS (grant no. 730403). As such, it was partly supported by the Swiss State Secretariat for Education, Research and Innovation (contract no. 16.0222). The opinions expressed and arguments used herein do not necessarily reflect the official views of the Swiss Government. M.P. was also supported by Stiftung Mercator Foundation under the research project AHEAD. We gratefully acknowledge all funding.
The authors declare no competing interests.
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Schmidt, T.S., Steffen, B., Egli, F. et al. Adverse effects of rising interest rates on sustainable energy transitions. Nat Sustain 2, 879–885 (2019) doi:10.1038/s41893-019-0375-2
Nature Energy (2019)