WACC the Dog: The Effect of Financing Costs on the Levelized Cost of Solar PV Power

Renewable Energy, Volume 75, March 2015

Hamburg University Working Paper FNU-201

32 Pages Posted: 6 Sep 2013 Last revised: 29 Nov 2014

See all articles by Janosch Ondraczek

Janosch Ondraczek

University of Hamburg, Research Unit Sustainability and Global Change; International Institute for Applied Systems Analysis (IIASA)

Nadejda Komendantova

International Institute for Applied Systems Analysis (IIASA)

Anthony G. Patt

International Institute for Applied Systems Analysis (IIASA); Swiss Federal Institute of Technology (ETH) - Department of Environmental Systems Science

Date Written: May 30, 2013

Abstract

The photo-voltaic (PV) power industry has grown rapidly in recent years, and associated with that growth has been a decline in costs. There are indications that PV has already reached cost-parity with power off the grid in some markets and projections that it will attain such grid parity in many more markets over the coming decade. Analysts have suggested that the growth in PV has come at an unnecessarily high price, with unnecessarily high subsidies. However, the factors influencing the cost of PV, and the subsidies required to sustain its construction, include more than just the strength of the sun. While differences in costs of such factors as initial capital spending, operation and maintenance, and decommissioning are hard to ascertain, it is possible to account for the cost of capital, on a country-by-country basis. In this paper, we therefore map the cost of solar PV globally, accounting for both the quality of the solar resource and the cost of capital in order to differentiate levelized costs of electricity (LCOE) from PV. Our results suggest that northern countries may not be an unwise location to subsidize PV construction, and further suggest that efforts to expand PV installation in developing countries may benefit greatly from policies designed to make low cost finance more widely available.

Keywords: solar photo-voltaic, levelized cost of electricity, cost of capital, global model

JEL Classification: C29, Q42, Q48

Suggested Citation

Ondraczek, Janosch and Komendantova, Nadejda and Patt, Anthony G., WACC the Dog: The Effect of Financing Costs on the Levelized Cost of Solar PV Power (May 30, 2013). Renewable Energy, Volume 75, March 2015. Available at SSRN: https://ssrn.com/abstract=2321130 or http://dx.doi.org/10.2139/ssrn.2321130

Janosch Ondraczek (Contact Author)

University of Hamburg, Research Unit Sustainability and Global Change ( email )

Grindelberg 5
Hamburg, 20144
Germany

International Institute for Applied Systems Analysis (IIASA) ( email )

Schlossplatz 1
Laxenburg, A-2361
Austria

Nadejda Komendantova

International Institute for Applied Systems Analysis (IIASA) ( email )

Schlossplatz 1
Laxenburg, A-2361
Austria

Anthony G. Patt

International Institute for Applied Systems Analysis (IIASA) ( email )

Schlossplatz 1
Laxenburg, A-2361
Austria

Swiss Federal Institute of Technology (ETH) - Department of Environmental Systems Science

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