The regional average cost of capital (CoC)for renewables was the highest in the Middle East and Africa (MEA) at 8.2 percent, according to an IRENA report that surveyed experts in 45 countries on six continents.

For the MEA, 17 respondents expected onshore wind CoC to increase, mainly driven by Türkiye, but reductions are expected in Kenya and South Africa.

For solar PV, the CoC is expected to decline by 29 basis points (0.29%) on average due to expected reductions in Kenya, South Africa and Uganda.

The report noted that CoC across countries and technologies varied from as little as 1.1 percent for onshore wind in Germany to above 10 percent for solar photovoltaic (PV) in Ukraine, in nominal terms, for the period 2019-2021.

“The CoC for renewable power generation technologies is a very important driver of total costs. For instance, for a representative solar PV project or onshore wind project, the total cost of electricity increases by 80 percent if the CoC is 10 percent rather than 2 percent,” the report observed.

It said the factors that influence CoC are project and country specific.

“A major CoC determinant is the macroeconomic environment, such as the prevailing interest rates. The experience in financing and standardisation matters. Uncertainty about the revenue to be expected increases CoC. Such uncertainty is often a direct consequence of the nature of support schemes or regulatory regimes and increasing merchant exposure,” the report noted.

The availability of new capital providers like pension funds has increased capital availability across many markets and reduced the CoC for renewable power projects, according to the report.

MEA region is represented by Egypt, Yemen, Tunisia, Uganda, South Africa, Kenya and Türkiye.

(Writing by Sowmya Sundar; Editing by Anoop Menon)