Today’s energy transition was built for a world of cheap money - AFR

The Australian Financial Review has reported that the energy transition model adopted by Australia and other developed economies was predicated on an era of low interest rates and cheap capital. As central banks have lifted rates to combat inflation, the financing costs of large capital projects, particularly wind, solar and battery infrastructure, have risen sharply. The article notes that the transition was designed around assumptions about cost of capital that no longer hold.

Where this fits

This is a cost story, and it cuts to the heart of the Energy Realism position. Renewables are cheap per megawatt-hour in isolation, but the whole-system bill includes firming, transmission overbuild, and now carries a financing load that was not priced into the business case. Higher capital costs also compound the materials and sovereignty problem: each battery, inverter and panel must now be financed at a higher rate, and those supply chains remain concentrated in China. Nuclear, by contrast, is capital-intensive but fuel-efficient and long-lived; its operating and financing costs flatten over decades. When capital is expensive, the case for a firm, low-material backbone strengthens.

What it means

Australia is now building a renewable grid on project finance that assumes higher interest rates indefinitely. That raises the real cost per megawatt-hour and extends payback periods, making it harder to retire aging coal plant on schedule or to add the transmission and firming capacity the grid actually needs. A grid dependent on weather and Chinese-supplied batteries is becoming more expensive to finance and more brittle to supply shock. The transition was costed for a world that no longer exists.