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Increasing the use of renewable energy (RE) is a key enabler of sustainable energy transitions. While the cost of RE have substantially declined in the past, here we show that rising interest rates can reverse the trend of decreasing RE costs, particularly in Europe with its historically low interest rates. In Germany, interest rates recovering to pre-financial crisis levels within 5 years could add 11% and 25% to the levelized cost (LCOE) of solar PV and wind onshore, respectively, with financing costs accounting for roughly one-third of total LCOE. As fossil fuel-based electricity costs are much less and potentially even negatively affected by rising IRs, the viability of RE investments would be markedly deteriorated. Based on these findings, we argue that rising interest rates could jeopardize the sustainable energy transition and propose a self-adjusting thermostatic policy strategy to safeguard against rising interest rates. The Energy Politics Group (EPG) within the Department of Humanities, Social, and Political Sciences of ETH Zurich investigates questions related to the governance of technological change in the energy sector.

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