An energy analysis of the Fine Resolution Antarctic Model (FRAM) reveals the instability processes in the model. The main source of time-mean kinetic energy is the wind stress and the main sink is transfer to mean potential energy. The wind forcing thus helps maintain the density structure. Transient motions result from internal instabilities of the Bow rather than seasonal variations of the forcing. Baroclinic instability is found to be an important mechanism in FRAM. The highest values of available potential energy are found in the western boundary regions as well as in the Antarctic Circumpolar Current (ACC) region. All subregions with predominantly zonal flow are found to be baroclinically unstable. The observed deficit of eddy kinetic energy in FRAM occurs as a result of the high lateral friction, which decreases the growth rates of the most unstable waves. This high friction is required for the numerical stability of the model and can only be made smaller by using a finer horizontal resolution. A grid spacing of at least 10-15 km would be required to resolve the most unstable waves in the southern part of the domain. Barotropic instability is also found to be important for the total domain balance. The inverse transfer (that is, transfer from eddy to mean kinetic energy) does not occur anywhere, except in very localized tight jets in the ACC. The open boundary condition at the northern edge of the model domain does not represent a significant source or sink of eddy variability. However, a large exchange between internal and external mode energies is found to occur. It is still unclear how these boundary conditions affect the dynamics of adjacent regions.