Low and declining interest rates have measurably contributed to the fall in the “levelised cost of electricity”, or LCOE, of renewable energies. [2] As a result, the cost of electricity from renewable sources is now comparable to, or lower than, that of conventional power plants. [3] These developments now risk being reversed by the marked rise in global interest rates over the past year.
Since fossil fuel-based power plants have comparably low upfront costs, a persistent rise in the cost of capital may discourage efforts to decarbonise our economies rapidly. Put simply, renewable energies are more competitive when interest rates are low.