The US Federal Reserve’s decision to hold interest rates steady leaves one more obstacle in place for the struggling clean energy industry.
Wind, solar, and battery storage projects tend to require large upfront investment before they pay off; the industry’s growth spurt in the 2010s was unlocked by interest rates that were close to zero.
With borrowing costs in the US now seemingly stuck between 4.25% and 4.5%, and with renewable-energy tax credits on the chopping block, project-financing conditions are looking increasingly grim, Thomas Byrne, CEO of the renewables developer CleanCapital, told Semafor: “A high-interest rate environment, coupled with antagonistic policy from DC, represents another challenge to the industry at a critical time given that the country’s demand for power is fast increasing.”
Still, a flurry of sudden, deep cuts — traders are betting on a 10% likelihood of 75 basis points of reductions by year-end — could also backfire, warned Izzet Bensusan, CEO of the energy investment firm Captona: That would set off a rush for equipment and labor that would drive total project costs up and cut into returns, he said.