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Economy

The Fed Announcement Is a Sneaky Bust for Renewables Developers

The central bank cut rates again, but that’s not the headline news.

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The Federal Reserve.
Heatmap Illustration/Getty Images

The Federal Reserve cut interest rates at its third straight meeting — but don’t expect as many cuts next year.

The Fed indicated that it expects only two quarter-point reductions in 2025, down from the four it had forecast in September, when it began its rate-cutting cycle. The news will likely overshadow any relief over lower rates for renewables developers, who have been counting on future cuts to ensure the profitability of their projects.

Since renewables like wind and solar have essentially no “fuel” costs compared to fossil fuel projects like gas-fired power plants, a higher portion of their overall costs must come from borrowed money, not from revenues the project itself produces. This makes the projects much more sensitive to borrowing costs.

The Energy Information Administration has projected that solar capacity will grow by 19.5% in 2025 and that wind capacity will increase by 6%. Wind projects, especially offshore wind projects, could be imperiled by higher interest rates and higher borrowing costs. The energy consulting firm Wood Mackenzie has estimated that a 2 percentage point increase in interest rates causes the price of energy produced by renewables to go up 20%.

Further pressure from inflation could also increase the cost of building out renewables. Several major offshore wind projects — such as New Jersey’s Ocean Wind 1 and 2, which were cancelled last year — have had to have their contracts renegotiated or even thrown out due to unexpected cost increases.

And despite the Federal Reserve interest rate cuts in the last quarter of the year, market interest rates have actually been drifting up in the past few months. Trump’s victory supercharged the stock market with promises of deregulation and general euphoria around tech stocks like Nvidia and Tesla (and crypto) and raised the possibility of higher inflation, with a potential combination of tax cuts, some spending increases, and tariffs.

Some analysts thought that even the Fed’s new rate-cutting forecast was too loose considering the economic data that has been arriving in recent months. “We have a hard time squaring them up against the economic forecasts, which show higher near-term growth, higher near-term inflation, and lower near-term unemployment,” Jefferies analyst Thomas Simons wrote in a note to clients Wednesday.

The new rate-cutting forecasts “amount to a message that the FOMC will tolerate above-target inflation for even longer than they previously indicated,” Simons wrote.

But what the market is focused on is that there may be fewer rate cuts than expected, not that there maybe should have been zero.

Over the past three months, the yield on the 10-year Treasury bond, an often-used benchmark for borrowing costs, has risen from around 3.7% to 4.5%, including a substantial jump following the Fed’s Wednesday announcement. Longer-term interest rates have risen “quite a bit since September,” Federal Reserve chair Jerome Powell said in a press conference Wednesday.

The iShares Global Clean Energy ETF, which tracks a basket of clean energy stocks, fell immediately following the Fed’s rate cut announcement; it fell around 3% today and is down 26% on the year, while broader stock market indices also fell, with the S&P 500 declining just under 3% today

Powell said that both the cut and the new, more restrictive forecast indicate that the Fed is “in a new phase in the process,” and that “from this point forward, it’s appropriate to move cautiously and look for progress on inflation.”

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AM Briefing

Nuclear’s Near-Term Fix

On Indonesia’s climate win, hacking renewables, and John Cena’s ad

Google headquarters.
Heatmap Illustration/Getty Images

Current conditions: A tropical rainstorm in the southwestern Gulf of Mexico, likely strengthening into what would become Tropical Storm Isaias, is poised to dump rain on the southeastern United States and may become the Atlantic’s first major hurricane of the year • Italy is bracing for a type of heavy rainstorm known as a nubifragio, set to soak Naples and Rome later this week • The Dome Fire in Yosemite National Park has burned about 7,000 acres, and officials determined it was sparked by humans.


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1. Google inks a deal to uprate 11 of Constellation’s nuclear reactors

If you can’t wait a decade or more for a new Westinghouse AP1000 or one of the small modular reactors under development, your best bet to get more nuclear electricity is probably to upgrade an existing reactor to squeeze more power out of it, a process known as “uprating.” In February, the Department of Energy gave out its largest-ever loan to Southern Company to fund up to 6 gigawatts of uprates across the utility’s nuclear fleet. Last week, Amazon inked a 20-year deal with Constellation, the nation’s largest operator of nuclear reactors, to buy power from and uprate the Calvert Cliffs plant in Maryland. Google has now signed a deal with Constellation aimed at wringing out 890 megawatts of new power from 11 reactors across PJM Interconnection, the nation’s second-largest and arguably most stressed grid system. Asked whether the uprates are a sufficient replacement for building new reactors, Raiford Smith, Google’s head of power and energy for the cloud, said there was plenty of demand to go around. “New data centers are coming on at a gigawatt a clip,” he told me yesterday. “That means even with all the uprates, there’s still more to come.” Software giant Oracle also announced a deal last week to buy $300 million of nuclear power from a NextEra nuclear plant in Wisconsin to help fund its increased fuel costs.

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Rob talks with the U.S. auto giant”s VP of batteries and sustainability, Kurt Kelty.

A Denali EV.
Heatmap Illustration/General Motors

There are two big trends in the American battery sector at the moment. The first is that the electric vehicle market is deteriorating. GM, for instance, sold just 25,000 EVs in the third quarter of this year. Ford sold 6,000 EVs. Even the long-awaited return of the Chevy Bolt sold just 8,000 units — a small fraction of the vehicle’s already-limited production run. At the same time, the data center boom and the return of electricity growth is boosting batteries of all kinds not designed to power EVs.

Our guest today is in charge of navigating those opposing trends and figuring out what comes next. Kurt Kelty started his career at Panasonic in 1993, where he led the company’s battery research lab. He then went on to Tesla, helping to build the first Gigafactory. Since February 2024, he’s been vice president of battery and sustainability at GM. We talked about manufacturing generally, how the U.S. battery manufacturing sector should look, and how companies should be structured to compete globally, even though they’re making batteries for a mostly U.S. audience.

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A Denali EV.
Heatmap Illustration/General Motors

This transcript has been automatically generated.

Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, YouTube, or wherever you get your podcasts.

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