Understanding the capital mobilization challenge of China’s clean power transition through project finance

The world is racing to stop the planet from overheating, and the most critical battleground is the electricity grid. To win this race, nations must replace the coal and gas plants that spew carbon with clean power sources like wind, solar, and nuclear energy. However, building these new plants is not just a matter of engineering or blueprints; it is a massive financial undertaking. Every project requires a huge sum of money upfront, and the cost of borrowing that money—known as the cost of capital—can make or break a project. If borrowing is too expensive, a clean energy plant might never get built, no matter how much the world needs it. For years, experts have tried to estimate these costs, but they often looked at the big picture, treating an entire country or a whole technology as a single block. They missed the messy, step-by-step reality of how a power plant actually gets from an idea to a working machine.

A team of researchers from institutions across China, the United States, and Europe has taken a closer look at this process. They wanted to understand the hidden financial hurdles that sit between a clean energy idea and a finished power plant. Instead of just looking at the final price tag, they followed the money through the entire journey of a project. They discovered that the biggest financial risk isn't the construction itself, but the long, uncertain years before construction even begins. During this early phase, developers spend money on site surveys, feasibility studies, and permits. Many of these projects fail before they ever break ground, and the money spent on those failed attempts is a cost that must be covered by the successful ones. By modeling this process for thirteen different types of power generation, the researchers found that the risk of failure in these early stages adds a significant premium to the cost of capital, especially for complex technologies like nuclear power and carbon capture systems.

The researchers built a detailed model that mimics the real-world decision-making process of power plant development. They broke the journey down into four distinct stages: choosing a site, studying if it will work, securing financing and permits, and finally, building the plant. At each stage, there is a chance the project will be abandoned. The team combined this model with data from experts who have actually worked on these projects in China. They asked these experts how long each stage takes and how often projects succeed or fail. They then used this information to calculate a "risk-adjusted" cost of capital. This is a number that reflects not just the interest rate on a loan, but the extra cost developers must pay to cover the money they lose on projects that never get built.

The results revealed a sharp divide between different types of energy. Technologies that are already common and move quickly, such as solar panels and wind turbines on land, have a relatively low risk-adjusted cost of capital, ranging from 6.2% to 6.6%. These projects move fast, and while many fail, the process is short enough that the financial penalty is manageable. However, for large-scale, high-risk technologies, the numbers climb steeply. Nuclear power plants and thermal plants equipped with carbon capture and storage face risk-adjusted costs between 7.0% and 9.6%. The study showed that the primary driver of this high cost is the low success rate during the very first stage: site selection. For nuclear and hydroelectric projects, the chance of a site selection attempt succeeding is often less than 10%. This means that for every one nuclear plant that gets built, developers have to spend money on many more sites that are eventually rejected. That wasted money has to be recovered, which drives up the cost of capital for the entire technology.

When the researchers applied these findings to the various pathways China might take to reach a net-zero future, the implications were stark. They looked at 120 different scenarios, including those that rely heavily on solar and wind, and those that depend on nuclear power or carbon capture. The study found that developers are currently bearing the brunt of the financial risk. In most transition pathways, developers provide more than 90% of the money needed before construction even starts. This includes the funds for all the failed attempts. If a project fails at the site selection stage, that money is often lost completely, or "stranded." In scenarios that rely heavily on nuclear power, the amount of capital that could become stranded in failed projects is enormous, reaching nearly 2 trillion US dollars in some cases. This creates a major bottleneck: developers are hesitant to start these long, risky projects because they cannot afford to lose so much money on failures.

The study suggests that the solution lies in changing how these early-stage risks are handled. The researchers found that if the success rate of site selection could be improved, the overall cost of the energy transition would drop significantly. For high-risk pathways like nuclear, raising the success rate of early stages could lower the total investment needed by up to 22%. This points to a specific need for new financial tools. Current financing options, like green bonds, are usually designed for projects that are already safe and ready to build. What is missing are tools that specifically support the risky early phase, helping to pay for feasibility studies and site surveys so that developers do not have to shoulder the entire cost of failure alone. The researchers noted that some countries already use public coordination to help with this, such as having government bodies conduct initial site surveys before developers get involved.

Ultimately, the paper argues that the challenge of the clean energy transition is not just about building more solar panels or wind turbines. It is about understanding the financial discipline required to bring complex, high-risk technologies to life. The transition cannot happen at the speed required by climate goals if the financial system does not adapt to the reality of project development. By recognizing that the early stages of a project are where the most money is lost, policymakers and investors can design better systems to share that risk. This would make it possible to launch the large-scale, clean-firm power sources that are essential for a stable, low-carbon future, ensuring that the capital needed to power the world is available when and where it is needed most.