The Insider/
The Ego and the FID
The Reserve Bank did exactly what the market, commentators and households expected on Tuesday, yet it still stung. The reasoning should concern proponents more than the current cash rate at 4.6 per cent, its highest level since 2011.
The Board pointed to a broadening conflict in the Middle East, global energy prices well above its August assumptions, AI-related demand pushing up prices for technology goods, and ongoing pressure on domestic capacity. These are shocks that arrive progressively, through the fuel bowser and the supply chain. They are also ahead of the quarter traditionally associated with holiday road trips and discretionary spending.
For major clean energy and industrial decarbonisation projects, this appears about as unfriendly an operating environment as it gets.
Capital and the energy transition
Freud described the ego as the part of us that swings between desire and reality. Major projects need that discipline now, particularly those at the bleeding edge of new markets. The desire is familiar, with every proponent wanting its own connection, its own tenure, its own subsidy and its own ribbon to cut. The reality is borrowed money from a starting point of 4.6 per cent and conflict pushing oil past US$105, and the Final Investment Decision (FID) reached by those who can compromise on a perfect outcome.
Transition projects are capital heavy, front-loaded and paid back over decades. That makes their economics hostage to the cost of capital more than almost any other variable. Every rate rise flows straight into debt costs, hurdle rates and the levelised cost of what they produce.
Development timelines were already long and a project that stacked up two years ago may no longer clear its hurdle rate at financial close. Expect investment committees to push decisions to the right and both investors and lenders to ask harder questions about how the business case holds if capital costs remain elevated.
Paradoxically, the forces pushing rates up are the same forces strengthening the strategic case for what these projects build.
With oil trading above US$105 a barrel and conflict deepening across the Middle East, dependence on energy transported through contested shipping lanes looks less like a commodity and more like a long-term liability. Governments now talk about energy, critical minerals and advanced manufacturing in the language of sovereignty and national security.
Capital has not fled the transition, but it has become more circumspect as it migrates toward projects that governments regard as strategic.
WA holds a stronger hand
Western Australia enters this cycle better placed than most. The Prime Minister has ruled out changes to the GST deal while he holds the job, the domestic economy has recorded a seventh consecutive year of growth, and the State has a balance sheet envied by the eastern states.
More importantly, the Cook Labor Government has started to use its fiscal position with intent. The State Development Act 2025 is now in operation, first for large-scale wind generation and the Western Trade Coast, and now for Collie, where a new State Development Area is backed by $39 million in roads, power and water for the Coolangatta Industrial Estate. That is industrial statecraft, with government coordinating land, infrastructure and approvals around precincts and policies it has chosen to back.
In a tight capital market, that coordination can crowd-in private money quickly. Shared infrastructure lowers capital expenditure and coordinated approvals shorten timelines. A clear state endorsement narrows the risk premium that lenders apply.
The data centre accelerator
Data centres in the right locations have the ability to further accelerate the transition. Yes, AI demand is one of the pressures named by the RBA, however, it is also creating a new class of large, long-term and creditworthy electricity customers. A hyperscale operator signing a long-dated power agreement hands a wind, solar or storage project the bankable revenue which a tight credit market demands. At scale, that demand could underwrite transmission and firming that serves the wider energy system.
New federal rules discussed at National Cabinet in September would require projects to buy power from new renewable generation, manage their water use and sit away from urban populations. The sites that pass those tests pair strong renewable resources with spare grid capacity and industrial land.
As ReGen Strategic wrote about recently, WA should seek to set its terms of the data centre rush early. A proponent that pairs new generation with a data centre anchor customer inside a declared precinct offers government and lenders a rare combination of new load, new supply and regional jobs in one package.
Suspending the ego
WA’s advantages only conspire positively if proponents stop working against each other. Few, if any, proponents can carry a transmission line, a water scheme or a port upgrade alone. Duplicating that infrastructure backbone project by project is an excess that the capital market will no longer fund.
The collaborative alternatives are well known and rarely taken up. Common-user infrastructure inside State Development Areas spreads the cost of the backbone across every tenant. Aggregated offtake lets one large customer underwrite several generators at once. Regional benefit funds shared across projects deliver more for host communities than a dozen standalone programs competing for the same ribbon.
Governments carry egos too. The standoffs between Canberra and Perth over the GST and domestic gas reservation have their politics, but investors price this intergovernmental friction as risk. A shared national and state view on what gets built, and where, is worth more to a proponent than any single grant.
Higher for longer is the working assumption until the Middle East settles and inflation returns to the band, and neither looks imminent. The proponents who reach FID in this cycle will stop waiting for rates to fall and build a case that holds at 4.6 per cent, one that is strategically aligned, anchored by long-term demand, sensibly staged and backed by the communities they operate in.
The ego wants to own the whole project. In a higher-for-longer world, the FID rewards those willing to own part of a bigger one.
Image credit: Marisa Peer