Towards Affordable Financing: The Role of Local Government Attention in Reducing Cost of Equity Capital for Renewable Energy Firms

High financing costs remain a major obstacle to the development of renewable energy, particularly in emerging economies. Since the high cost of capital is largely attributed to investors’ apprehensions regarding the policy uncertainty and local conflicts, high attention from the local government on the advancement of renewable energy industry may alleviate potential risks and improve financing conditions. This research aims to examine the extent to which local government attention contributes to a reduction in the local firm’s financing costs. Applying natural language processing to annual government work reports from 293 Chinese prefecture-level cities between 2012 and 2023, the study develops a local government attention indicator and identify the causal effect of such attention on corporate capital costs through double machine learning. The results reveal that local government attention significantly lowers the cost of equity for local renewable energy firms by optimizing governmental resource allocation and promoting information disclosure. Furthermore, this effect demonstrates heterogeneity at two levels. At the regional level, the impact is more pronounced in cities characterized by better grid integration, lower competitive pressure, non-resource dependency, and stronger innovation environments; at the firm level, it is more salient among enterprises characterized by state-owned, utility companies, and engaged in non-hydropower renewable energy sectors. In conclusion, local government attention is essential for reducing ICOC and improving financial accessibility in developing economies. Nevertheless, local government should also exercise caution to ensure the intensity of attention is aligned with the specific conditions for renewable energy development in their respective regions and firms.