The Impact of Interest Rates on Electricity Production Costs

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Putting the economy on an environmentally sustainable path requires substantial investments in green energy technologies. Long-term interest rates play a crucial role for energy investments. Against this background, we study the impact of interest rates on the costs of producing electricity with different technologies, using renewable and non-renewable energy, respectively. We find that low interest rates increase the competitiveness of green energy technologies versus brown energy technologies, that stable interest rates are more beneficial for green investments than for brown investments, and that a discount on the interest rate charged for green investments may be more efficient than a premium on interest rates for brown investments to support the transition towards renewable energy.