New coal projects have become very expensive to finance – Mother Jones
This story was originally published by the Guardian and is reproduced here as part of the Climate office collaboration.
The costs of financing coal have increased over the past decade, with investors demanding returns four times the required returns from renewable energy projects to justify the risk of investing in fossil fuels, as the world is moving towards cleaner energy sources.
A study from the University of Oxford found that during the same period, the cost of investing in renewable energy sources, such as wind farms and solar panels, fell as technologies from clean energy prove that they can be profitable and lucrative investments.
The research analyzed the cost of financing energy projects by tracking the “loan spreads” offered by lenders, which determine how well they expect their returns to be to cover investment risk.
Investors typically require wind and solar power projects to produce returns of at least 10% to 11% to account for the low risk of the investment. But for coal investments, yields must climb to 40% to justify the growing risk of a highly polluting project being left on hold as governments step up their climate action ambitions.
Dr Ben Caldecott, director of the Oxford Sustainable Finance program and co-author of the report, said reducing loan spreads for renewable energy projects means they could become “even cheaper for taxpayers and taxpayers alike. Which is a “good thing for rapid decarbonisation of the energy sector.” “
The report aggregated the costs of financing renewable energy over a five-year period from 2010 to 2014 compared to the costs of lending between 2015 and 2020. It found that the cost of financing solar farms fell by 20%, while that the cost of financing onshore and offshore wind farms fell by 15% and 33% respectively.
While Europe has led the way in lowering costs for offshore wind farms, Australia has taken the lead in reducing onshore wind financing costs, and solar financing costs have fallen faster in America. North.
But investors are demanding higher returns from coal projects, which has pushed up their financing costs. Credit spreads for power plants and coal mines increased sharply, to 38% and 54% respectively.
Caldecott added that the sharp rise in the costs of coal mines and coal-fired power plants proves the risk of investing in fossil fuels during the transition to cleaner energy sources, which are “sometimes seen as a risk. distant and long term ”, was already“ Priced today ”.
“The challenge is that this is not happening uniformly and is certainly not happening at the rate required to tackle climate change. In particular, financing costs will have to increase for oil and gas projects, ”he said.
The financial constraints that have tightened around the coal industry since the switch to cleaner energy began have not materialized to the same extent for the oil and gas industry, according to the research.
The report found that the cost of financing gas-fired power plants has increased by 7% over the past decade, but for coal-fired plants, the costs have increased by 38% over a similar period.
While the financing costs associated with coal mining have increased by 58%, the cost of financing oil and gas production has only increased by 3% over the past decade. In the case of offshore oil production, costs have fallen by over 40%.
Dr Xiaoyan Zhou, also of the Oxford Sustainable Finance program and lead author of the report, said the trend towards climate-conscious investing could see the cost of capital for oil and gas “go the coal route”. that could have “very important implications for the economy of oil and gas projects around the world.” “
“This could result in stranded assets and introduce substantial refinancing risks,” she said.