It’s therefore necessary to make sure that the regulation of even things that we all agree need to be regulated is at that sweet spot, the Goldilocks point. It is possible for regulation to be so strict that it makes the problem worse, not better. We have pointed out before that there is that corollary to the Laffer Curve, the Snowdon Curve. And that is how we will know they are lying. Which is the prediction - we will be told we must have low interest rates for 15 year wind projects, for 20 year solar and not for 50 year nuclear. So, logically, if we are to have a special low interest rate for wind and solar then we should for nuclear. High upfront costs, low running costs, the real determinant of the cost of the entire project being the interest rate applied. For that basic fiscal set up is also shared by nuclear. It is after this that we make our prediction. To then insist upon lower interest rates is double counting - or double subsidy.īut there will be those calls, we guarantee it. No, there shouldn't be, for we’re already including all those externality costs of fossil fuels in the other things - carbon permits, etc - that we’re doing. We’ve actually already seen it being floated, the idea that there should be some special - lower - interest rate for green projects. Therefore we’re going to see shrieking that something must be done. The basic financial economics is exactly the same for solar - the costs are near entirely upfront meaning that interest rate changes hugely change the viability of an installation. When interest rates rise that 18 months becomes 12 and 6 and negative 12 and so on. To be crude about it, the cashflow from the last 18 months (or whatever) of the 15 year installation is the profit, everything that comes before it is just paying back the capital plus interest. Capital costs that is, which are then paid back over the operating lifetime. The vast majority of wind farm costs are upfront. The reason why is obvious and no, it’s not supply chains. A string of offshore wind projects meant to power Britain are in jeopardy after the global race to net zero sent costs soaring, casting doubt over the industry’s future as a cheap source of energy.Ī surge in supply chain costs has pushed up the price of wind turbines, while increases in global interest rates have raised refinancing costs substantially.Īh, so that terribly cheap wind power isn’t, in fact, cheap.
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