Efforts to rapidly expand the world’s renewable energy capacity have been buttressed by strong growth in global solar and wind investment. Annual spending on solar and wind projects has risen by more than $300 billion in the past five years, benefitting from policy support and cost declines. In 2023, it’s set to account for a third of the expected $1.8 trillion in overall clean energy investment.
Volatile commodity prices and supply chain constraints have interrupted the extended run of cost declines for key clean energy technologies. Meanwhile, the sharp rise in interest rates globally, aimed at containing inflation, is pushing up the cost of capital after a long period when accessing financing was relatively cheap.
These trends are exposing the clean energy industry to new challenges and, in some cases, extreme financial pressure. Signs of strain have been particularly apparent in the wind sector, as well as in emerging and developing economies, where the rising cost of capital is particularly sharp and could threaten clean energy transitions, according to the commentary.
To address these issues, policy makers need to urgently rethink the design of auctions and tenders, boost confidence in the reliability of demand, and address the factors that make the run-up in financing costs even worse in the developing world.