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The High Cost of Electricity Price Uncertainty


The rapid worldwide growth of renewable energy has been largely underpinned by government support over the past decade. As technologies become cost-competitive with traditional electricity generation, governments are naturally looking to withdraw their support.

Removing revenue stability for renewable power generators will come at a cost. We estimate that exposure to volatile wholesale power prices will drive up the cost of capital for new renewable power projects by a remarkable 200 basis points (e.g. from a 5% IRR hurdle rate to 7%). This could result in fewer developers undertaking new renewable energy projects, thereby slowing the energy transition and increasing future liabilities associated with climate change.