The energy transition’s “shortage of returns”

The limited return on investments (RoI) - rather than the access to capital is increasingly being cited as a leading barrier to scaling the energy transition. To put this into perspective, Ehsan Khoman, Head of Research: Commodities, ESG and Emerging Markets (EMEA), delves into MUFG’s latest ESG thought leadership report, titled, “Energy transition’s “shortage of returns”. Profitability (not capital) remains a critical barrier to decarbonisation” (read more here) in this week’s podcast.

Ehsan states that one of the most pertinent impediments to inadequate returns from the transition has been higher interest rates. In essence, renewables are fuel-free, but that means almost all of their expenditures are incurred upfront – financed with debt. That makes them more dependent on the cost of finance (which has been rising) than carbon-intensive alternatives. Encouragingly, as interest rates begin to ease, the dynamic reverses, which may likely accelerate the uptake in clean energy.

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