High Interest Rates Challenge Global Shift to Renewables
A new report from Wood Mackenzie examines how the global shift to higher interest rates to combat inflation is squeezing the energy transition.
PV Magazine International 4:52 pm on April 23, 2024
The Wood Mackenzie report examines how rising interest rates pose challenges to the global energy transition, specifically affecting low-carbon technologies and renewables due to their high capital intensity and reliance on debt financing. Renewable energy, such as solar, is currently less affected by these higher borrowing costs compared to oil and gas because of its lower cost of debt and greater price certainty. However, the report warns that this advantage could be eroded if interest rates continue to rise, potentially slowing down the transition to renewables and increasing costs.
- Rising interest rates are challenging the global shift towards renewable energy and low-carbon technologies
- Renewables currently have an advantage in terms of lower cost of debt and greater price certainty than oil and gas
- Interest rate increases could lead to significant cost hikes for renewables, making them less attractive compared to traditional energy sources
- Governments should continue to subsidize the energy transition despite rising debt and borrowing costs
- Policymakers need to take action to offset interest-rate headwinds by removing obstacles, offering incentives, bolstering carbon markets, and mobilizing green finance
https://www.pv-magazine.com/2024/04/23/high-interest-rates-challenge-global-shift-to-renewables/