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Re: Renewable Energy
« Reply #5050 on: October 19, 2020, 09:37:56 PM »
Quiggin at insidestory: interest rate decline drives solar investment

" the sharp change in the IEA’s analysis wasn’t primarily a reflection of technological progress or climate policy. Rather it was prompted by a decline in the interest rate used to calculate the cost of investments in energy."

"after thirty years, modules installed today should still be working at around 85 per cent of their initial capacity. A working lifetime of twenty-five years is therefore conservative."

"Solar PV is so cheap to operate that its cost arises almost entirely from the need for investors to earn a rate of return on the capital  ... Until now, the IEA has used real rates of return ranging from 7 to 8 per cent, which implies payback periods of nine to ten years."

"In its 2020 report, the IEA acknowledged how low interest rates have fallen by reducing the cost of capital to between 2.6 and 5 per cent for Europe and the United States, with somewhat higher rates for China and India. On average, the cost of capital has almost halved, implying a near doubling of the time a project needs to pay a full return to investors."

"What happens in the extreme case where interest rates fall to zero? In these circumstances, the notion of a payback period ceases to be relevant. All that is required for an investment to be justified is that its lifetime returns should exceed the cost of construction."

"Once a solar module has been installed, a zero rate of interest means that the electricity it generates is virtually free. Spread over the lifetime of the module, the cost is around 2c/kWh (assuming $1/watt cost, 2000 operating hours per year and a twenty-five-year lifetime). That cost would be indexed to the rate of inflation, but would probably never exceed 3c/kWh."

"The prospect of electricity this cheap might seem counterintuitive to anyone whose model of investment analysis is based on concepts like “present value” and payback periods. But in the world of zero real interest rates that now appears to be upon us, such concepts are no longer relevant. Governments can, and should, invest in projects whenever the total benefits exceed the costs, regardless of how those benefits are spread over time."