The cost of debt of renewable and non-renewable energy firms

Abstract

The risks imminent to younger technologies and markets may hinder renewable energy firms’ access to financing. This could curtail the investment needed for the transformation of the global energy sector. However, comprehensive analyses of the cost of debt of renewable and non-renewable energy firms are lacking. Here, we empirically analyse the differences between the costs of debt of firms developing and producing renewable energy technologies and of non-renewable energy firms. We use global micro-level data on individual loans matched to firm-level data. The results suggest that renewable energy firms might face a higher cost of debt initially, when technologies and markets are young and immature. However, a cost advantage of renewable energy firms emerges over time. The results also show that the costs of debt of renewable energy firms are lower in economies with a more developed banking sector and comparatively stringent environmental policies. The perception of risks imminent to younger technologies may hinder renewable energy firms’ access to financing. Here, Kempa et al. have used a global dataset of loans to show that the cost of debt of renewable energy firms decreased over time below those of non-renewable energy firms, which saw an increase in financing costs.