Counting the cost of capital for renewable energy investments in the EU

The “DiaCore project” has evaluated the cost of capital across the European Union, and has found that it varies significantly from country to country. The project’s report is the first to estimate the costs of capital for onshore wind energy across all 28 EU Member States. The cost of capital is determined by the cost of debt, and the cost of equity. In 2014, this cost ranged from between six percent in German to more than 15 percent in Estonia, Greece, Latvia, Lithuania, Romania, and Slovenia. The cost of debt varied between 1.8 percent in Germany and 12.6 percent in Greece. This resulted in a weighted average cost of capital from 3.5 to 12 percent.

“There is a growing gap among EU Member States on the financing of renewable energy project,” explains Ecofys Principal Consultant David de Jager. “From the very start of a project, project developers in the EU do not face the same financing conditions. Why does the cost of capital vary so much? Because of the risks for investors: if an investment is risky, the cost of capital increases”.

The project finds that next to the generic country risk, the main risk for investors in renewable energy is the policy-induced risk. Unstable policies, such as sudden retroactive changes, automatically increase the cost of reaching renewable energy targets.

The DiaCore project was funded by the Executive Agency for Small and Medium Enterprises (EASME). The research was led by Ecofys, Fraunhofer ISI, eclareon, EPU-NTUA, TU Wien and LEI and was based on interviews with more than 110 banks and project developers in the EU. 

The report can be downloaded at the DiaCore webpage.