Cost of capital for renewables and enabling technologies: Measuring the multidimensional heterogeneity in Switzerland

Abstract

The cost of capital (CoC) is a critical parameter that significantly impacts the levelized costs of low-carbon energy technologies and cost-optimal decarbonization pathways. Nevertheless, empirical evidence on CoC differences between technologies and investor types is limited. Here, we study the heterogeneity among 11 technologies based on 193 CoC inputs from utilities, financial investors, and project developers in Switzerland. We find a wide range of CoC values across the technologies, averaging 3.6 % for small rooftop PV and 7.8 % for green hydrogen. Furthermore, we record an empirical variation of six percentage points even for assets of the same technology group, like solar PV, indicating differences between business models and investor types. Unlike neighboring countries that primarily rely on project finance for renewables, we find balance sheet financing to play an essential role for Swiss investors. Our results stress the need to differentiate CoC assumptions in energy system modeling and to consider not only technologies but also investor types and regional specificities as additional CoC dimensions.