Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Economy

The Fed Announcement Is a Sneaky Bust for Renewables Developers

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

•
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.”

Green

You’re out of free articles.

Subscribe to access Heatmap's exclusive climate and energy polling, award-winning journalism, and subscriber-only events. Save $57 on an annual subscription, just $156 $99/year.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Politics

California Just Voted for Single-Payer Wildfire Insurance

Progressive candidate Jane Kim declared victory in the race for California Insurance Commissioner.

Jane Kim and Ben Allen.
Heatmap Illustration/Getty Images, Jane Kim, Ben Allen

Few political wonks outside of California were likely paying much attention to the Golden State on Tuesday night, as Democrats’ anticipated blue wave crested. But the state did have one close, consequential race on the ballot: insurance commissioner. On Friday, Bernie Sanders-endorsed progressive Jane Kim won the race to lead the California Department of Insurance, which oversees the state’s $452 billion insurance market.

Kim declared victory over the more moderate State Senator Ben Allen, who was backed by the California Democratic Party, after reaching a nearly six-point lead on Friday. In a brief speech before supporters, Kim said Allen called to congratulate her that morning. (A spokesman for the Allen campaign confirmed the call to The Orange County Register.) Kim ran on a proposal for a state-run, single-payer insurance program that would cover homeowners against wildfire damage — though the plan would ultimately need approval from both the California legislature and Governor-elect Xavier Becerra.

Keep reading...Show less
Yellow
Data center construction.
Heatmap Illustration/Getty Images

Beyond the repudiation of Donald Trump, if there was one message voters sent on election night, it was that they really don’t like data centers.

Democrats who ran against rampant data center development won at both the gubernatorial level (Amy Acton in Ohio, Gina Hinojosa in Texas) and the senatorial level (Abdul El-Sayed in Michigan, Annie Andrews in South Carolina). The Wall Street Journal counted 125 Democrats nationwide who “targeted their opponents over data centers.”

Keep reading...Show less
Yellow
Mike Levin.
Heatmap Illustration/Getty Images

It’s crunch time for the Senate’s bipartisan permitting reform and transmission bill. In three days, the bill’s authors plan to put the Bipartisan American Affordability and Jobs Act to a vote on the Senate floor. That means there’s probably only three days to finish up an amendment to the bill that addresses critics’ concerns without toppling the delicate balance the authors initially struck to foster bipartisan support.

BAAJA has major implications for climate policy, as it would make it much easier and cheaper to build high-voltage transmission lines that connect renewable energy from where it is generated to demand centers. It includes ratepayer protection provisions that require data centers to pay all of the costs of upgrading the grid so that they can hook up to it. The bill would also speed up permitting for energy projects of all stripes, from solar farms and geothermal plants to pipelines and liquified natural gas terminals.

Keep reading...Show less
Blue