High costs of capital hinder the equity, speed and abatement potential of solar and wind deployment globally

High costs of capital are a substantial barrier to renewables deployment in developing countries, but there is limited empirical data on how financing costs vary across countries and between technologies. Here, using bespoke estimates for over 150 countries, we assess the impact of national costs of capital on renewable levelised costs of electricity (LCOE). We show that the cost of capital is inversely related to economic development, with the inclusion of national costs of capital increasing LCOE in developing countries by an average of US$19/MWh and 28/MWh for solar and onshore wind, compared to a uniform scenario. Across developing regions, the share of financing costs in renewable LCOEs rises from 40–42% up to 78% under national costs of capital, leading to an annual cost increase of US$574bn and US$888bn globally if 5% of technical potential was developed. Factoring in grid carbon intensity, we show that the largest lifetime abatement potentials are located in developing countries, up to 20 times those in developed countries. Understanding the influence of high costs of capital on renewable costs will be key to the effective provision of international support in an increasingly constrained development finance environment, contributing to a more rapid and equitable energy transition.