The beauty of the design lies in the balance of the incentives -- if electricity is too expensive, then sure miners will drop out, which lowers the hashrate and thus the security of the ecosystem, but remember that if electricity is expensive for honest miners than it will also be expensive for attackers. And if somehow there is an asymmetry where attackers have access to cheaper electricity than other honest miners, well it's likely in their economic interest to simply become miners themselves rather than attackers...
Bitcoin can easily exist at a minimal survival level that is effectively outside the fiat system for all practical intents and purposes, by leeching off free or near-zero cost electricity (I mean, nobody cares about the electricity bill for "folding@home"). In that kind of mode, it may not have industrial scale and you might not want to transact trillions of fiat-dollars worth of value through it, but it can easily exist.