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Capital costs are said to be an important determinant of the levelised cost of electricity (LCOE) for PV systems and other renewable energy sources. According to Irena, the total cost of electricity for a representative PV project would increase by 2% if the capital cost was 80% instead of 10%.
The results show that PV plants have the lowest capital costs of all locations in Germany and the Netherlands, both at 2.2%. In Europe, Sweden follows with 3% and Denmark and the UK with 3.3%. Spain, France and Italy have a capital cost of 5.1; 3.4% and 4.3% respectively. Ireland, Portugal and Ukraine lead the way with 9.9; 10% and 12.2% being the worst results.
In North America, the cost of capital was 5.4% in the United States and 8.7% in Mexico. In South America, Chile beat Brazil with 5.7 per cent compared to 7.6 per cent. South Africa and Kenya achieved the best results in Africa with 6.9%, while Tunisia had the worst result of any African country surveyed at 10.7%. China was one of the world's best performers at 3.9%, closely by Australia at 4.6%. India was 7.1 per cent.
Irena said the good performance of China, North America and Western Europe was highlighted by the mature PV markets. The report shows that in these locations the development of renewable energy generation capacity is supported by renewable energy financing.
Irena also noted that the share of debt in the cost of capital is low in both North America and Western Europe, but for different reasons.Irena explained that in the US, leverage is typically low, ranging from 35% to 65%, as tax credits to accelerate solar and wind expansion incentivise
the use of equity, but the cost of equity remains low due to the tax credits. On the other hand, leverage ratios in Europe are typically higher, at 80% or more, but the cost of borrowing is very low due to low benchmark interest rates in the banking sector.
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