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The Bank of England (BoE) could help cut UK electricity costs by more than £1.9bn a year from 2030 if it introduces a lower interest rate for investment in renewable energy projects, a thinktank report estimates.
The New Economics Foundation (NEF) said a 2.5% decrease in interest rates for renewables and grid upgrades could reduce bills by £24 per household each year.
Climate advocates have long pushed the idea of a dual interest rate for green financing, especially as rate rises to combat inflation in recent years have increased the costs of renewables, which have higher upfront costs.
French president Emmanuel Macron said last year it is “absurd” that there are few incentives for green financing and pushed for a dual interest rate. The ECB has said it could consider the idea.
The NEF think-tank said the BoE should introduce a temporary term funding scheme for energy price stability (TFSEPS) that would offer banks long-term loans at a lower rate so they could lend cheaply to clean energy projects and buildings retrofits.
“If it’s serious about tackling inflation, the Bank needs to support the transition to home-grown clean energy, rather than hinder it with high rates that harm clean investment,” said Theo Harris, economic policy researcher at NEF.
However, some central bankers say the idea of dual interest rates should not be part of monetary policy.
Emmanuelle Assouan, general director of financial stability and operations at the Banque de France (BdF), said implementing a pricing signal like having a lower rate for green energy projects is a fiscal policy tool, rather than one for monetary policy.
This page was last updated December 6, 2024
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Emma Thomasson is a British journalist, consultant and trainer based in Berlin. She is an expert in economics, politics, business and technology. She previously worked for Reuters as a correspondent and bureau chief in Germany, Switzerland, the Netherlands, South Africa and the UK.
