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The end may be in sight, but it’s not here yet.
Are interest rates going to go down? The market will have to wait.
Following a Tuesday report showing steady consumer prices in May and prices overall only rising 3.3% in the past year, the Federal Reserve held steady on interest rates, releasing a projection Wednesday showing just one rate cut this year.
If rates do indeed fall this year (or next, when the Fed is projecting four cuts), that would be a big relief to renewable developers. There’s been an unprecedented flow of money into the sector in the past few years — whether from tax credits from the Inflation Reduction Act or power purchase agreements from utilities and corporations that want to decarbonize, you name it — but it’s come at the same time as projects have gotten more expensive to undertake. That’s in terms of labor and supplies, but also the most important part of any project: money.
“In the near term, investors are looking for market rates to fall to reduce financing costs — the Fed cutting the base rate could greatly help this along,” Srinivasan Santhakumar, senior research analyst at Wood Mackenzie, told me in an email.
Interest rates don’t affect every project equally. Renewables tend to be capital intensive, meaning that a higher portion of their costs are in building them as opposed to operating them. For an offshore wind turbine project, almost 70% of the expenditure comes from capital, whereas with a combined-cycle natural gas turbine plant it’s less than 20%, according to Wood Mackenzie data.
That’s because, in the case of wind and solar, the “fuel” is free, unlike with natural gas and other fossil-based energy sources. This means that developers have to fund more of the project upfront with borrowed money, which means a bigger hit from higher interest rates. According to an analysis by the investment bank Lazard, when the cost of debt is 5%, the levelized cost of an offshore wind project is $88 per megawatt-hour; when the cost of debt rises to 8%, the levelized cost rises to $118. For a combined cycle gas plant, the levelized cost per megawatt-hour rises from $66 to just $76.
“You’re really sensitive to interest rates” as a renewable developer, as Tim Latimer, the chief executive officer of the geothermal startup Fervo, explained to me. “That’s a big investment up front.”
In some sense, renewables economics have been a victim of their own success, Latimer said. Because there are lots of buyers for 15 years’ worth of renewable electricity and no risk of fuel costs surging or falling dramatically, the “spread” that renewable projects demand over risk-free rates is much smaller than for natural gas projects. But that means as rates rise, the spread shrinks more with renewables. “That has a much bigger relative impact on the economics,” Latimer said.
Geothermal projects have similar economics to other renewables, Latimer said, and being able to sell power to offtakers has helped protect the finances of Fervo’s projects.
Democratic Senators Sheldon Whitehouse and Elizabeth Warren have pressed Federal Reserve chair Jerome Powell on the high rates, citing the effect on renewable investments. “Your decision to rapidly raise interest rates beginning in 2022, and the potential that they may remain too high for too long, has halted advances in deploying renewable energy technologies and delayed significant climate and economic benefits from these projects,” the two wrote in a letter to Powell in March.
Executives from some of the world’s biggest renewables companies have been singing this song, as well. “Renewable energy in general is very, very susceptible to rising interest rates and offshore wind, even the most of all of the renewable energy sectors because it's so capital intensive. Our fuel is free, we say, but our fuel is really the cost of capital because we put so much capital out upfront,” Orsted Americas chief executive officer David Hardy told Bloomberg.
In a May earnings call, Orsted’s global chief executive, Mads Nipper, told investors, “It’s impossible to say whether [costs] have peaked yet, and on the way down, as that will hinge, very much, on the macroeconomic factors, and the rates, specifically.”
The premium renewables can yield over government debt has shrunk dramatically since 2020, BloombergNEF analyst Atin Jain said. In response, developers have increased prices for power purchase agreements, knowing that they can do so thanks to the demand for their clean electrons. But that also means more expensive power when the deals are struck, and in the case of several offshore wind projects in the Northeast, price increases can sometimes mean the deals never get done at all, even in spite of generous IRA tax credits.
“Higher interest rates are driving up project costs and [power purchase agreement] costs as well,” explained Michael Arndt, the president of Recurrent Energy, at a forum hosted by the American Council on Renewable Energy. “Being able to bring in more tax equity is a big offset to a higher interest rate environment.”
According to BNEF data, developers have tried to shorten the term of their borrowing, aiming to avoid getting locked into higher rates for a long time, while also going to the bond market for financing as opposed to bank loans, which typically means paying a lower rate. This then advantages longer tenured and more established developers who are better able to access the bond market. As Esper Nemi, the chief financial officer of the green energy giant Brookfield Renewable Partners, said in a May earnings call, “Our access to scale capital means we can execute on large opportunities where there are fewer viable partners and risk adjusted returns can therefore be very attractive.”
“Where possible, if you’re a creditworthy issuer and you’re more financially stable and have the ability to make regular interest payments, you have been viewed attractively by the bond market,” Jain told me. Bond issuance by utilities and renewable developers has more than doubled since before the pandemic, according to BNEF data. “That’s how people are navigating this environment: cutting loan tenors, doubling down on bonds. Everyone is hoping that though they have to tap more expensive debt now they’ll be able to refinance those loans,” Jain said.
How many people will be able refinance remains to be seen. “Developers with deeper balance sheets are able to navigate this a little bit better than smaller or midsize companies,” Jain added.
Latimer said that higher rates could be particularly challenging to first of a kind projects. Investors have a return they want a new project to generate and that figure moves up with interest rates.
“The return hurdle that you need to hit to entice capital that views your project as a new development and new technology moves up with interest rates,” Latimer told me. “Your project economics have to be that much better relative to what your baseline was before because everyone has higher return expectations.”
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Along with Senator John Curtis of Utah, the Iowa senator is aiming to preserve the definition of “begin construction” as it applies to tax credits.
Iowa Senator Chuck Grassley wants “begin construction” to mean what it means.
To that end, Grassley has placed a “hold” on three nominees to the Treasury Department, the agency tasked with writing the rules and guidance for implementing the tax provisions of the One Big Beautiful Bill Act, many of which depend on that all-important definition.
Grassley and other Republican senators had negotiated a “glidepath for the orderly phaseout” of tax credits for renewables, the senator in a statement announcing the hold, giving developers until July 2026 to start construction on projects (or complete the projects and have them operating by the end of 2027) to qualify for tax credits.
Days after signing the law, however, President Trump signed an executive order calling for new guidance on what exactly starting construction means. The title of that order, “Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources,” has generated understandable concern within the renewables industry that, as part of a deal to get conservative House members to support the bill, the Treasury Department will write new guidance making it much more difficult for wind and solar projects to qualify for tax credits.
“What it means for a project to ‘begin construction'’ has been well established by Treasury guidance for more than a decade,” Grassley said. Under these longstanding definitions, “beginning construction” can mean undertaking “physical work of a significant nature,” which can include or buying certain long-lead equipment or components like transformers. Another way to qualify for the credits is to spend 5% of the total cost of the project.
A more restrictive interpretation of “begin construction,” however, could turn the tax credit language into a dead letter, especially when combined with the rest of the administration’s full-spectrum legal assault on renewable energy.
Grassley said that new guidance is expected within two weeks, and that “until I can be certain that such rules and regulations adhere to the law and congressional intent, I intend to continue to object to the consideration of these Treasury nominees.”Grassley has a long history with production tax credits for wind energy, playing a pivotal role in their extension in 2015. “As the father of the first wind energy tax credit in 1992, I can say that the tax credit was never meant to be permanent,” Grassley said at the time. “The five-year extension for wind energy brings about the best possible long-term outcome that provides certainty, predictability and a responsible phase-down of a tax incentive for a renewable energy source.”
Almost 60% of Iowa’s electricity is generated by wind turbines, the highest proportion of any state, according to Energy Information Administration data.
Utah Senator John Curtis has joined Grassley in placing a hold on nominees, delaying their vote before the whole Senate, according to Politico’s Joshua Siegel. Grassley and Curtis, alongside Lisa Murkowski of Alaska and Thom Tillis of North Carolina, were unable to get a meeting with the Treasury Department to discuss the guidance, Siegel reported.
On Puerto Rico’s water crisis, LNG’s tax scam, a nuclear safety scandal
Current conditions: Wildfire smoke in Alberta, Canada, is so thick that the airport had a visibility of just about 650 feet, and the air quality index hit 2241, 10 times higher than “hazardous” levels • At least 10 Chinese provinces are on alert for heavy rainfall this week, with as much as 8 inches deluging Beijing • Prolonged heatwave conditions in southeastern Europe are raising the risk of fires.
A wildfire in Arizona’s Grand Canyon National Park that has burned for nearly a month has grown into the largest blaze in the continental U.S. so far this year, scorching more than 114,000 acres as of this weekend. The Dragon Bravo fire, near the park’s North Rim, is expected to increase in size in the coming days due to the exceptionally dry, hot weather, The New York Times reported.
It’s far from the only major fire burning out West. The Gifford fire in California grew to nearly 40,000 acres on Sunday within the Los Padres National Forest in south-central California. The fire was just 3% contained as of late Sunday evening, according to the federal wildfire tracker, InciWeb. Last month, my colleague Jeva Lange wrote that the “next big wave” of wildfires out West “could happen any day.” As she reported, “the components for a bad fire season are all there — the landscape just needs a spark.” Lightning has been a particular concern in the Pacific Northwest, where thunderstorms led to 72 fires in two Oregon counties during just one night in June. A lightning strike is the likely cause of the Dragon Bravo fire.
One of many anti-corruption protests in San Juan, Puerto Rico. Jose Jimenez/Getty Images
Nearly eight years after Hurricane María decimated Puerto Rico’s power grid, the United States’ most populous territory still suffers electricity outages every week and faces rising utility bills. But the island of more than 3 million American citizens is reeling this week from yet another utility failure: Water outages. As many as 180,000 households in Puerto Rico lost access to running water last week, and thousands are still without service. The electricity and water issues are combined. Updates on the state-run water utility’s X page indicated that several water pumping stations are out of service due to a lack of electricity. Governor Jenniffer González Colón called in the National Guard to help distribute water.
It’s just the latest crisis afflicting the Caribbean territory’s basic infrastructure as the island enters the peak of hurricane season. The local government last month escalated its battle with New Fortress Energy, the financially troubled New York-based gas company that provides its fuel and operates its power plants. González Colón is considering ending the island’s contract with LUMA Energy, the private consortium that controls the power grid. Faced with ongoing blackouts, the government just scrapped Puerto Rico’s renewable energy targets and extended the life of a highly polluting coal plant, threatening devastating health consequences for the surrounding community, as I reported earlier this summer for the MIT Technology Review. And, despite González Colón’s chummy relationship with President Donald Trump, federal funding for Puerto Rico’s post-María reconstruction is still trickling out almost a decade after the storm.
The One Big Beautiful Bill Act is bringing tax credits for wind turbines, solar panels, and electric vehicles to a swift end on the grounds that the technologies are mature and therefore no longer worth subsidizing. Yet America’s largest exporter of liquified natural gas is seeking “alternative fuel” tax credits simply for running its vessels on the fuel they carry, exactly as they’re designed to do. The tax credit, originally signed into law by former President George W. Bush in 2005, was intended to incentivize the switch from gasoline and diesel to biofuels, LNG, and liquid fuels derived from coal. The tankers Cheniere Energy, the nation’s top overseas seller of American LNG, uses to ship its fuel around the world are built to boil off fuel from the tanks that hold its cargo. But the company is seeking federal rewards for using the LNG, according to an investigation by Inside Climate News. If the Internal Revenue Service approves the request, Cheniere could net more than $140 million.
The Trump administration has vowed to cut back and streamline nuclear regulations to make building new reactors easier, potentially compromising safety. The effort has stirred enough drama at the Nuclear Regulatory Commission that a Republican commissioner resigned last week. Now a scandal at the St. Lucie Nuclear Power Plant in Florida is providing a timely reminder of why strict oversight exists over atomic energy stations. An inspection report on the plant, owned by Florida Power & Light, revealed that workers feared reporting safety problems to upper management lest they face retaliation. And that comes right as a database shows safety violations soared over the past year, according to the Tampa Bay Times.
The investigation came as the Department of Energy discovered four radioactive wasp nests at the defunct Savannah River nuclear facility in South Carolina. The finding suggested that environmental contamination at the site, which previously developed weapons-grade material for the U.S. government, is more extensive than previously understood. While advocates of nuclear energy draw clear distinctions with the military-related sites, political upheaval at the federal agency that oversees radioactive materials could put the growing bipartisan consensus on building more reactors at risk.
Tesla’s board approved a $30 billion payout of shares to Elon Musk in a new compensation deal, according to a regulatory filing on Monday that followed the billionaire's threat to leave the electric automaker if he didn't receive more stock.
The move came days after a jury in Florida found flaws in Tesla’s self-driving software partly responsible for a crash that killed a 22-year-old woman in 2019 and severely injured her boyfriend, The New York Times reported. If Friday's verdict holds, Tesla will be on the hook for as much as $243 million in damages to the parents of the woman and her boyfriend. The jury decided that Tesla bore 33% of the blame for the crash. Tesla said it would appeal. It’s a setback for Musk’s driverless ambitions. As Tesla’s human-driven automotive offerings stalled out last year, Heatmap contributor Andrew Moseman wrote that, “sure, maybe it will be the one to crack full autonomous driving. But in practical terms, that tech is not close to reality, and Tesla’s version of it has encountered its fair share of bugs and been sued over crashes.”
New research from Stanford University has “upended conventional wisdom about electric vehicle battery management. Contrary to popular belief, a more dynamic driving style could significantly extend the lifespan of EV batteries,” including not charging the units to 100%.
The department creates a seemingly impossible new permitting criteria for renewable energy.
The Interior Department released a new secretarial order Friday saying it may no longer issue any permits to a solar or wind project on federal lands unless the agency believes it will generate as much energy per acre as a coal, gas, or nuclear power plant.
Hypothetically, this could kill off any solar or wind project going through permitting that is sited on federal lands, because these facilities would technically be less energy dense than coal, gas, and nuclear plants. This is irrespective of the potential benefits solar and wind may have for the environment or reducing carbon emissions – none of which are mentioned in the order.
“Gargantuan, unreliable, intermittent energy projects hold America back from achieving U.S. Energy Dominance while weighing heavily on the American taxpayer and environment,” Interior Secretary Doug Burgum said in a statement included in a press release announcing the move. “By considering energy generation optimization, the Department will be able to better manage our federal lands, minimize environmental impact, and maximize energy development to further President Donald Trump’s energy goals.”
Here’s how this new regime, which I and many in the energy sector are now suddenly trying to wrap their heads around, is apparently going to work: solar and wind facilities will now be evaluated based on their “capacity density,” which is calculated based on the ratio of acres used for a project compared to its power generation capacity. If a project has a lower “capacity density” than what the department considers to be a “reasonable alternative,” then it may no longer be able to get a permit.
“On a technology-neutral basis,” the order states, “wind and solar projects use disproportionate Federal lands relative to their energy generation when compared to other energy sources, like nuclear, gas, and coal.” The document going on to give an example, claiming that data from the U.S. Energy Information Administration shows an advanced nuclear plant uses less federal acreage than an offshore wind farm and “thus, when there are reasonable alternatives that can generate the same amount of or more energy on far less Federal land, wind and solar projects may unnecessarily and unduly degrade Federal lands.” The order also includes a chart comparing the capacity density of wind and solar facilities to conventional nuclear, gas, and coal, as well as geothermal, and claims that these sources are superior as well. The document does not reference hydropower.
There’s also a whole host of other implications in this order. Crucially, does the Interior expect that by choking off the flow of permits, cities and companies will just pony up to build what the Trump administration considers “reasonable alternatives” instead? Is the federal government going to tell communities in Nevada, for example, that they must suddenly build gas plants in the desert instead of solar farms to meet their increasing energy needs?
In any case, much more is coming, as this order simply built off of a separate secretarial order earlier this week commanding staff to prepare a litany of recommendations on ending alleged “preferential treatment” for solar and wind facilities. In other words hold my beer – and hold onto yours, too.