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

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Abstract

The photovoltaic (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.

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  • Janosch Ondraczek & Nadejda Komendantova & Anthony Patt, 2013. "WACC the Dog: The Effect of Financing Costs on the Levelized Cost of Solar Pv Power," Working Papers FNU-201, Research unit Sustainability and Global Change, Hamburg University.
  • Handle: RePEc:sgc:wpaper:201
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    Keywords

    solar photovoltaic; levelized cost of electricity; cost of capital; global model;
    All these keywords.

    JEL classification:

    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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