High interest rates threaten rollout of green economy, says consultancy report

Renewable energy companies in Canada are feeling the pinch of higher interest rates, which a new report says could make the net-zero transition more costly and difficult.Renewable energy has been booming in Canada, in part because its production costs have come down to where most wind and solar generation is cheaper than traditional fossil-fired generation. But high interest rates put the growth of the sector at risk, according to a new report.

Renewable energy has been booming in Canada in recent years, in part because its production costs have come down to the point where most wind and solar generation is actually cheaper than traditional fossil-fired generation.But the up-front capital expense to build a solar farm or wind turbines is significant, and in most cases requires project financing secured by long-term power purchase agreements.

Wood Mackenzie itself has estimated that $75 trillion US in investment will be required if the world is to reach net-zero greenhouse gas emissions by 2050. In the United States., the Wood Mackenzie analysis showed that a two-percentage-point increase in the risk-free interest rate pushes up the cost of electricity by as much as 20 per cent for renewables. The comparative increase for a combined-cycle natural gas-fired power plant is only 11 per cent, the report states.

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