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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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Hotspots

Meta Data Center Federal Pipeline Review Due Early Next Year

And more of the week’s top fights around development.

The United States.
Heatmap Illustration/Getty Images

1. Richland Parish, Louisiana – Gird your loins for the coming fight over the Meta Hyperion data center’s gas pipeline.

  • On Wednesday, the Federal Energy Regulatory Commission laid out plans for an environmental assessment of the Entergy pipeline for the Meta data center under the National Environmental Policy Act and stated it’ll be issued in early January 2027. Federal agencies have been ordered by the panel to complete any remaining decisions on authorizations by April.
  • The decision to do an environmental assessment under NEPA will be controversial. The Sierra Club filed comments to FERC stating they wanted an environmental impact statement instead that took into account the environmental impacts of the data center being fed by the pipeline, as well as a review of the project’s cumulative impacts, as the activist group said they’re explicitly linked to the data center’s operations. “The power stations and data center are not remote or speculative developments unrelated to the proposed action,” their comments read.
  • This is quite similar to what’s playing out with the Green Chile pipeline in New Mexico for Oracle and OpenAI’s Project Jupiter, which we recently explained could turn into litigation with high stakes for future gas pipelines linked to data centers. But to me, this conflict with Meta feels like it has more at stake for this individual project, as it’s playing out while construction on gas power plants for the data center has been underway for almost a year after earlier being blessed by state regulators.
  • I asked Sierra Club what could happen next. Eric Huber, one of their managing attorneys, told me on Thursday, “I heard the EA is expected in January, but we are in wait and see mode and will decide on further steps when it comes out.” Meta and Entergy did not respond to a request for comment.

2. Spartanburg County, South Carolina – I have one last data center race to tell you to watch on Tuesday: South Carolina’s 4th, on the northern rim of the state.

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Plus

Is the Election Really About Data Centers?

Talking with Kevin Gunderson, the head of public affairs for Digital Realty.

Kevin Gunderson
Heatmap Illustration

This week’s conversation is with Kevin Gunderson, head of public affairs for data center developer Digital Realty. On Wednesday, Digital Realty released a fascinating poll as part of Infrastructure for America, a pro-data center organization that also includes Compass, Vantage Data Centers, and QTS. The poll pushed back on the idea that we’re currently in the middle of a “data center election”; instead, it found most voters are not expected to choose their national elected officials based on a politician’s stance on data centers.

I reached out to folks involved in the poll's release, and they put me in touch with Gunderson, whom I’ve met before and consider to be a straight shooter. He accepted my invitation to do a candid hot-seat chat about the findings, his thoughts on all the data center attack ads, and whether his industry’s actually recovering any ground with the American people.

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Politics

Why Project Certainty Is the Thorniest Part of the Permitting Bill

Can a key section of BAAJA be saved from unintended consequences?

Donald Trump and Congress.
Heatmap Illustration/Getty Images

Any bipartisan bill to update the nation’s permitting laws was always going to be a compromise, with advantages for the oil and gas industry as well as clean energy. Proponents of the Senate’s latest attempt at permitting reform have painted it as a delicate balance, a hard-won opportunity, and an all-or-nothing deal.

What, then, to make of drafting errors, or unintended consequences?

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