The impact of interest rate uncertainty on renewable energy investments: Compared with conventional energy investments

Abstract

In contrast to other types of energy investments, governments often use long-term power purchase agreements (PPAs), subsidy policies, etc., to lock in returns on renewable energy investments. To some extent, these initiatives ensure that renewable energy investment has a fixed future cash flow. The publics demand for an increase in the proportion of renewable energy also forces the government to maintain an annual investment in renewable energy. However, it remains uncertain whether peoples willingness to invest would not be severely affected, and whether renewable energy investment volumes are uniquely robust in the face of financial uncertainty. In this paper, linear regression method is used to analyse the impact of short-term interest rate uncertainty on renewable/conventional energy investment, and covariance analysis is used to test whether these impacts are significantly different. The data indicate that short-term interest rate uncertainty has a significant negative impact. Investment in both types of energy shrinks rapidly in the face of high interest rate uncertainty. No obvious stability is found on renewable energy investment volume in the face of short-term interest rate uncertainty.