Photo by Pixabay from Pexels.

High interest rates pose a threat to the energy transition

It would raise the cost of capital for renewables and nascent technologies.

High interest rates will “disproportionately affect” renewables, nuclear power and new technologies which could put the energy transition at risk, according to Wood Mackenzie.

In a report, WoodMac said that future projects could be burdened if high-interest rates persist due to their high capital intensity and low returns.

On the other hand, companies in the metals and mining and oil and gas sectors will be unaffected due to their low gearing.

ALSO READ: Singapore faces cost, investment hurdles in hydrogen push

“Interest rates, which have risen sharply in the past two years, may not come down as far or as quickly as markets anticipate. This increased cost of capital has profound implications for the energy and natural resource industries, particularly the cost and pace of the transition to low-carbon technologies,” said Peter Martin, Wood Mackenzie’s Head of Economics and lead author of the report.

For example, the higher interest rates could remove the advantage of the onshore wind sector in the US which could produce electricity at $40 per megawatt-hour, which is 50% higher than the cost of gas-fired generation.

“Whilst power and renewables companies have higher gearing, they do compare favourably with other peer groups on a cost-of-debt basis. But this is precisely what makes them more sensitive to interest rates,” Martin said.

Mechanisms to reduce price and offtake risk enable power and renewables companies to obtain debt more cheaply than the relatively risky oil and gas and metals and mining sectors. The recent rise in interest rates, therefore, has a larger proportional impact on their cost of debt,” he added.

Follow the link for more news on

Join Asian Power community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!


Why Singapore could be the ‘tipping point’ for ASEAN renewable and grid development
Heavily reliant on gas, the country is still on track for its 2035 net-zero target, but could be more ambitious to hit its 2050 goal by 2045.
Power Utility
Will the government pay for coal power exit in Vietnam?
The country’s coal power phase-out strategy sees renewables accounting for 67.7%–71.5% of the energy mix by 2050.