"Reality Check" - JP Morgan Warns Of Delay To Global Energy Transition

Authored by Irina Slav via OilPrice.com,

Inflation, interest rates, and wars may well delay the energy transition by quite a long time, JP Morgan has warned in a call for “a reality check” on its shift from hydrocarbons to alternatives.

“While the target to net zero is still some time away, we have to face up to the reality that the variables have changed,” the bank’s head of global energy strategy, Christyan Malek, told the Financial Times.

Malek was the lead author of a new report by JP Morgan focusing on energy.

The report noted higher interest rates, inflation, and the wars in Ukraine and the Middle East were all factors acting as setbacks for the transition.

The report—and Malek’s FT interview—coincided with another report, by Reuters, quoting Rystad Energy analysts as warning about the negative effects of higher interest rates on wind and solar energy developers.

"Owing to the capital-intensive (Capex) nature of renewable energy...they are inherently more susceptible to high-interest rates," Rystad Energy’s head of renewables and power, Vegard Wiik Vollset, said.

Wood Mackenzie has also warned that higher rates are having a negative effect on the economics of wind and solar, as a 2% rate increase can push the levelized cost of electricity for these two sources as much as 20% higher.

“Interest rates are much higher,” JP Morgan’s Malek also said, speaking to the Financial Times.

“Government debt is significantly greater and the geopolitical landscape is structurally different. The $3tn to $4tn it will cost each year come in a different macro environment.”

Because of these challenges, Malek forecasts that governments will dial down the push to transition from oil and gas to wind and solar as their financial resources dwindle.

The FT noted as an example the Scottish parliament’s recent decision to abandon a 75% emission reduction target by 2030 admitting it could not be achieved.