High interest rates could slow the pace of the global energy transition by increasing the cost of capital for new projects.
Renewable energy projects and emerging low-carbon technologies are more exposed to the current high interest rate environment globally, which could slow the pace of transition to clean energy , Wood Mackenzie said in a new report on Thursday. The rising interest rates in many major renewables markets in the past two years have significantly raised the cost of capital for new projects, the energy consultancy says.
For example, an analysis by Wood Mackenzie showed that a 2-percentage point increase in the risk-free interest rate in the United States pushes up the levelized cost of electricity LCOE for renewables by as much as 20%. The comparative increase in LCOE for a combined-cycle gas turbine plant is only 11%.
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