Guest essay by Eric Worrall
According to FT, cheap interest rates should be an opportunity for businesses to max out the corporate credit card on renewable energy infrastructure.
Low rates provide a historic opportunity to tackle climate change
Renewables’ costs tend to be front-loaded and deliver savings over time
Deirdre Cooper DECEMBER 26 2019Print this page
Tackling the climate crisis will require the world’s largest ever peacetime investment. Historically low interest rates mean there has never been a better time to make it.
Interest rates affect the entire economy, but are particularly important for renewables because the cost of borrowing has an outsized influence on their competitiveness. Fuel costs are essentially zero for green power — sun, wind and water are free. That means capital expenditure is the biggest component of the average cost of producing renewable electricity.
So why has investment in renewables not grown anywhere near the pace required to achieve the Paris agreement — which focused on an international pledge to keep global warming well below 2C above pre-industrial levels — as the UN’s recent Emissions Gap report makes plain?
The answer is partly that cheap money has kept debt-laden oil and gas producers on life support. According to McKinsey, free cash flow per barrel of oil from US independent producers has been negative for the past eight years. Taking on more debt has so far masked the problem, but this cannot go on forever.
So what is going wrong for renewables? Recent stumbles for solar in big markets such as India — where new installations fell more than a third in the first half of 2019 compared with the same period in 2018 — demonstrate that uncertainty about regulatory and fiscal policy acts as a brake on investment.
Read more: https://www.ft.com/content/c752698c-200c-11ea-92da-f0c92e957a96
Why is regulatory uncertainty such an issue for renewables?
The part Dierdre left out is that renewable energy businesses can’t stand on their own merits, they need government intervention to make a profit.
Nobody wants unreliable energy unless politicians force them to accept it. The moment politicians tire of answering questions about skyrocketing electricity prices, or tire of paying out endless renewable subsidies for very little visible benefit, interest in renewable energy collapses.
I can think of more sound basis for business investment than the whim of fickle politicians.
Credit: Source link