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 today to experience Heatmap’s expert analysis 
of climate change, clean energy, and sustainability.
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
Climate

An Unexpected Obstacle to Putting Out the L.A. Fires

That sick drone shot is not worth it.

A drone operator and flames.
Heatmap Illustration/Getty Images

Imagine for a moment that you’re an aerial firefighter pilot. You have one of the most dangerous jobs in the country, and now you’ve been called in to fight the devastating fires burning in Los Angeles County’s famously tricky, hilly terrain. You’re working long hours — not as long as your colleagues on the ground due to flight time limitations, but the maximum scheduling allows — not to mention the added external pressures you’re also facing. Even the incoming president recently wondered aloud why the fires aren’t under control yet and insinuated that it’s your and your colleagues’ fault.

You’re on a sortie, getting ready for a particularly white-knuckle drop at a low altitude in poor visibility conditions when an object catches your eye outside the cockpit window: an authorized drone dangerously close to your wing.

Keep reading...Show less
Climate

What Started the Fires in Los Angeles?

Plus 3 more outstanding questions about this ongoing emergency.

Los Angeles.
Heatmap Illustration/Getty Images

As Los Angeles continued to battle multiple big blazes ripping through some of the most beloved (and expensive) areas of the city on Friday, a question lingered in the background: What caused the fires in the first place?

Though fires are less common in California during this time of the year, they aren’t unheard of. In early December 2017, power lines sparked the Thomas Fire near Ventura, California, which burned through to mid-January. At the time it was the largest fire in the state since at least the 1930s. Now it’s the ninth-largest. Although that fire was in a more rural area, it ignited for some of the same reasons we’re seeing fires this week.

Keep reading...Show less
Green
Politics

AM Briefing: High Stakes Hearings

On tough questioning from the Senate, LA’s fires, and EV leases

Trump’s Cabinet Picks Face Confirmation Hearings This Week

Current conditions: Odd weather has caused broccoli and cauliflower plants to come up far too early in the UK • Another blast of Arctic air is headed for the Midwest • An air quality alert has been issued in Los Angeles due to windblown dust and ash.

THE TOP FIVE

1. Strong winds threaten progress in battle against LA fires

Firefighters in Los Angeles are scrambling to make progress against the ongoing wildfires there before dangerous winds return. The Palisades and Eaton fires have now been burning for almost a week, charring nearly 40,000 acres, damaging more than 12,000 structures, and leaving at least 24 people dead. They are 13% and 27% contained, respectively. Residents who lost their homes are desperately trying to find new properties to rent or buy in a tight market, with reports of intense bidding wars as landlords hike rents. The economic toll of this disaster is estimated to be between $135 billion and $150 billion. Red flag warnings are in effect today, with critical fire conditions and extreme wind gusts forecast through Wednesday.

Keep reading...Show less
Yellow