The dashboard is a free resource to provide data on the cost of capital, focusing on clean energy projects in emerging and developing economies. It also provides information on the main underlying risks perceived by investors and financiers in each country, as well as case studies. We hope these resources will help drive policy changes to lower financing costs in the areas of the world that most need it.

For additional information on how to estimate the cost of capital, the Cost of capital in clean energy transitions report highlights the importance of financing costs in the energy transition, defines what financing costs are (also commonly referred to as weighted average cost of capital, or WACC) and provides both a theoretical and practical explanation of how to calculate them. For the purpose of this dashboard we estimated financing costs as the weighted average of the after-tax (or all-in) cost of debt and the minimum expected equity internal rate of return (IRR).

In 2023, the second year we ran the survey, our coverage expanded in both geography and technologies. We continued to focus on collecting data from the same five key countries in 2022 – Brazil, India, Indonesia, Mexico and South Africa – but also added an additional effort to gather data for Kenya, Senegal and Viet Nam, even if the data points for these countries were comparatively fewer. We also introduced inquiries for two new technologies, utility-scale batteries and offshore wind, in addition to solar PV and gas power projects. In the survey performed in 2023 we asked for WACC data of projects taking final investment decision (FID) in 2022. An analysis of the latest data can be found in the related commentary.

The cost of capital is expressed in local currencies, nominal terms and after tax. In cases where respondents to the survey provided a range instead of a single value of the cost of capital, we included the minimum and the maximum value of that range. We also made assumptions on the corporate tax or inflation in cases where respondents did not specify these values and provided responses in pre-tax and/or real terms. For inflation, when necessary, we assumed the average annual inflation of the last ten years. To convert responses in hard currency (e.g., USD) to local currency, we added the difference in 10-year bond yields (between a domestic bond denominated in local currency and a US bond) and subtracted the country risk (to avoid double counting).

The more prominent data point in the graph for each of the country series represents the median of all data points: we estimated the median WACC as the average between the median of the minimum WACC values and the median of the maximum WACC values.

The underlying business models of these projects are feed-in tariffs, long-term power purchase agreements (PPAs) or contract for differences. In these models, the majority of the project revenues are defined upfront in long-term contracts (of up to 30 years, depending on the country), providing a relatively high level of price certainty over the project lifetime.

Investments with full merchant risk (fully exposed to short-term wholesale prices) are still rare. Survey results show that, as expected, WACCs for merchant projects are higher than those with revenue-supported mechanisms like PPAs, reflecting additional price and volume risks for investors. However, we did not obtain enough responses on WACCs for merchant projects to make robust conclusions yet. This is why the WACC values for merchant projects are not included in the graphs above and tables below.

During the 2023 survey stakeholders were asked identify the top risks that should be addressed first to achieve reductions in the cost of capital in each country. On average, political, currency, regulatory, off-taker and transmission risks were the five key risks addressed first. The first two relate to country-wide issues, which apply for energy investments and beyond, while the later three correspond to sector-specific risks.

It is important to note that the institutions which replied to the 2023 survey were not the same as those that replied last the 2022 survey. For instance, 13 out of the 24 institutions that responded in 2023 also replied in 2022, but 11 are new institutions, this difference in the pool of respondents (that may have different risk profiles and therefore risk perceptions) can create “noise” in the medians, as the change from one year to the other may be due to changes in the characteristics of the sample. However, we also compared the responses of companies that replied in both years to drive conclusions.

We are very grateful to the various investors, financiers and developers that have already filled the survey. The Observatory is a long-term project and we plan to have frequent updates in the coming years as well as new and different resources. Please email us at investment@iea.org if you would like to participate of the survey or provide feedback or suggestions.