A new global analysis has found that the climate benefits of renewable energy depend on a financial variable often hidden behind the headlines about solar panels, wind turbines and falling technology prices: the cost of capital. The study, published in Nature Communications by L. Hatton, G. Oluleye, M. Jansen and colleagues, argues that high financing costs can substantially weaken the emissions reductions delivered by renewable-energy deployment, particularly in countries where clean-energy investment is most expensive. The finding challenges the assumption that installing the same wind or solar technology produces roughly the same climate result everywhere. In practice, the economics of a project—and therefore its scale, speed and competitiveness—are shaped as much by financial risk as by the technology itself.
The cost of capital is the price an investor pays to obtain the money needed to build an energy project. It includes interest on loans, the return expected by shareholders and compensation for risks such as currency instability, changing regulations, political uncertainty, unreliable power markets or the possibility that a project will not operate as planned. Economists commonly combine these factors into a measure known as the weighted average cost of capital, or WACC. A lower WACC means that a developer can repay construction costs over time with smaller financial charges. A higher WACC raises the revenue required for the same project to break even, even when the turbines, panels and batteries are identical.
That distinction is crucial because renewable energy is dominated by upfront expenditure. A gas or coal plant spends much of its lifetime purchasing fuel, whereas a wind or solar facility generally pays most of its costs before it begins generating electricity. Once built, the facility can produce power without continuously buying coal or gas. This structure makes renewables highly sensitive to interest rates and investor expectations. If financing becomes more expensive, the project’s levelized cost of electricity—the average price required to cover construction, operation and financing over its lifetime—can rise sharply. Projects that looked competitive under favorable financial conditions may then be delayed, downsized or abandoned.
The researchers’ central message is that renewable-energy capacity alone is not a sufficient measure of climate progress. Two countries can install similar amounts of solar or wind power yet achieve very different emissions outcomes if their financing environments differ. In a market with low borrowing costs, a renewable project may displace fossil-fuel generation quickly and operate at a scale that accelerates the retirement of carbon-intensive plants. In a high-cost financial environment, the same project may deliver less capacity for every dollar invested, leaving more room for coal and gas in the electricity mix. The resulting difference is not caused by weaker sunlight, poorer wind resources or inferior engineering, but by the financial conditions surrounding deployment.
This effect becomes especially important in emerging and developing economies, where energy demand is growing rapidly and renewable resources are often abundant. Many of these countries face higher borrowing costs than wealthier nations, even when their solar irradiation or wind potential is excellent. Investors may demand larger returns to offset perceived risks, while local currencies can lose value against the currencies used to purchase equipment or repay international loans. Higher sovereign interest rates can also raise the cost of private projects, because lenders treat national economic conditions as part of the risk surrounding an investment. The result is a paradox: countries with major opportunities to expand clean power may be among those least able to finance it affordably.
The study places this financial inequality at the center of global mitigation policy. Climate models and energy scenarios often focus on technology costs, resource availability, electricity demand and policy targets. Those factors remain essential, but the new analysis indicates that the cost of capital can change how efficiently renewable deployment translates into avoided greenhouse-gas emissions. When financing is expensive, governments and developers may need to commit far more money to achieve the same reduction in fossil-fuel generation. Alternatively, limited public funds may support fewer projects, slowing the transformation of the power system at the precise moment when electricity demand is expanding.
The implications reach beyond individual wind farms and solar parks. High financing costs can affect the entire sequence required for decarbonization, including transmission lines, storage facilities, grid upgrades and flexible sources of electricity that balance variable renewable generation. Solar and wind output changes with weather and time of day, so large-scale deployment often requires stronger grids, regional interconnections, batteries, demand-response systems or other forms of flexibility. Each additional piece of infrastructure requires investment, and each can be made more expensive by elevated borrowing costs. A financial barrier at one point in the system can therefore slow multiple technologies at once, reducing the pace at which clean electricity can replace fossil fuels.
The findings also help explain why falling prices for solar modules and wind turbines have not produced equal renewable-energy revolutions worldwide. Manufacturing improvements, larger turbines and more efficient solar cells have reduced the physical cost of generating clean electricity. Yet hardware is only one part of a project’s lifetime economics. If a developer must borrow at a substantially higher rate, the savings achieved through cheaper equipment can be partly or entirely offset by financing charges. This is why comparing technology prices alone can give an incomplete picture of global energy competitiveness. The same technological breakthrough can produce rapid emissions cuts in one region and only modest progress in another.
For policymakers, the analysis points toward financial tools as a form of climate infrastructure. Public loan guarantees, concessional finance, currency-risk protection, development-bank lending and carefully designed contracts can reduce the risks that private investors build into project prices. Stable regulation and credible electricity-market rules can also lower the premium demanded by investors. International climate finance could be directed not only toward purchasing clean technologies, but toward improving the terms under which those technologies are financed. By lowering WACC, public institutions may unlock substantially more private investment and allow each unit of public support to produce greater emissions reductions.
The broader warning is that the global energy transition cannot be judged solely by counting gigawatts of renewable capacity or celebrating another record year for installations. What matters is where projects are built, how quickly they displace fossil generation and whether countries with the greatest growth in electricity demand can access capital on reasonable terms. Hatton, Oluleye, Jansen and their colleagues show that finance is not a secondary detail behind the energy transition; it is one of its governing forces. If the world treats high capital costs as an invisible obstacle, renewable deployment may remain uneven and its climate benefits may fall short. If governments and international lenders succeed in reducing that barrier, the same wind, solar and storage technologies could deliver a much faster and more widely shared reduction in global emissions.
Subject of Research: The influence of capital costs and financing conditions on the emissions-mitigation effects of global renewable-energy deployment.
Article Title: High costs of capital shape the mitigation effects of renewable energy deployment globally.
Article References: Hatton, L., Oluleye, G., Jansen, M. et al. “High costs of capital shape the mitigation effects of renewable energy deployment globally.” Nature Communications (2026). https://doi.org/10.1038/s41467-026-75666-6
Image Credits: AI Generated
DOI: 10.1038/s41467-026-75666-6
Keywords: Renewable energy, cost of capital, climate finance, emissions mitigation, solar power, wind power, energy transition, WACC, developing economies, clean-energy investment
