20 October 2020

John Quiggin: “[S]uppose, instead of private capital, solar projects were financed using thirty-year government bonds. Remarkably, the real rate of interest on these bonds has fallen to zero or below — and if the current judgements of investors are correct, rates will remain at or close to zero for decades to come. … Until recently they have been seen as an anomaly, the result of emergency measures taken in response to the global financial crisis and then the Covid-19 pandemic. But twelve years after the GFC, and with years of low rates ahead of us, emergency conditions have become the norm. … The Australian government recently sold $15 billion in thirty-year bonds offering a yield of 1.7 per cent, less than the likely rate of inflation. … Once a solar module has been installed, a zero rate of interest means that the electricity it generates is virtually free. Spread over the lifetime of the module, the cost is around 2c/kWh (assuming $1/watt cost, 2000 operating hours per year and a twenty-five-year lifetime). That cost would be indexed to the rate of inflation, but would probably never exceed 3c/kWh. … Governments can, and should, invest in projects whenever the total benefits exceed the costs, regardless of how those benefits are spread over time.”