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Economy

A Sigh of Interest Rate Relief for Renewables

The Fed chair signaled cuts on the horizon, much to the joy of clean energy investors.

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A Sigh of Interest Rate Relief for Renewables

Are clean energy developers finally free from high interest rates? Not yet, but this might be the beginning of the end. At the Federal Reserve’s annual conference in Jackson Hole, Fed chair Jerome Powell told attendees, “The time has come for policy to adjust.”

Analysts and market participants immediately appeared to interpret this as locking in a series of interest rate cuts starting at the next Federal Open Market Committee meeting next month. Stocks immediately rose and yields on U.S. government debt fell. Market prognosticators expect the federal funds rate to fall a quarter of a percentage point at the September meeting, but there’s a reasonable chance the cut would be larger.

The renewable energy industry — or at least its share prices — got in on the party. Shares of NextEra, which has a massive renewables business, rose following the speech. The stock price of Iberdrola, the Spanish utility with a large wind business, rose after text of the speech was released. The iShares Global Clean Energy ETF, which tracks a range of clean energy companies, is up more than 2.5% today. (No such luck for GE Vernova, which manufactures wind turbines — its shares fell today after another turbine blade failure at the Dogger Bank wind farm off the coast of England, coming barely a month after a blade manufacturing defect led to the Vineyard Wind disaster.)

Renewables investors are particularly giddy at the moment because for years now, the industry has disproportionately suffered the effects of high interest rates compared to fossil fuels. Unlike a natural gas- or coal-fired power plant, a wind turbine or a solar panel does not have to pay for its fuel. In the long term that’s a win, because there is no such thing as a wind pipeline rupture or the discovery of new reserves of sun, and therefore nothing that can send prices reeling. But in the short term, that means the lifetime cost of a solar or wind farm is heavily weighted towards building it.

And to build, you need to borrow money.

“Wind and solar have taken a beating from high interest rates because they’re very capital intensive projects,” Lori Bird, director of the World Resources Institute’s U.S. Energy Program, told me. “Because they’re capital intensive, a 2 percentage point increase in interest rates yields a 20% increase in the cost of electricity, compared to 11% from fossil,” Bird said, citing estimates from Wood Mackenzie.

Developers take out construction loans to build their projects and then pay those back with a term loan that covers the life of the project, explained Advait Arun, senior associate of energy finance at the Center for Public Enterprise (and also a Heatmap contributor).

“If you’re a developer who’s going through the construction process right now, your construction loan is probably floating-rate, so the amount of of interest you’re paying on your construction loan will fall,” Arun said. After you're done building, you get another loan to pay off the construction loan, and that loan can be smaller if your construction loan gets cheaper thanks to lower rates.

These longer-term loans are paid back from the project’s revenues over the life span of the project, which means that the developer or investor will not have to earn as much from selling the electricity to cover the cost of their debt.

Alongside the supply chain issues and inflation that developers — especially offshore wind developers — had to deal with over the last few years, high interest rates have led to higher costs for the power that renewables developers sell. The price of power purchase agreements for wind and solar rose in 2023, thanks, in part, to high rates, and only stabilized early this year as investors became convinced that cuts were finally close.

But whether these lower financing costs turn into higher profits or lower prices for electricity consumers is, unfortunately, not a sure thing — which is one reason why the industry's shareholders may have responded positively to Powell's speech.

“I think profit expectations will rise,” Arun said. “If there’s less money you need to pay in debt service, it doesn’t mean developers will pass on price savings.”

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Spotlight

A Giant Data Center Offers a Permitting Reform Test Case

What would happen to Project Jupiter if the Bipartisan American Affordability and Jobs Act is passed?

Project Jupiter.
Heatmap Illustration/Project Jupiter, Library of Congress

One of the nation’s largest data centers is struggling under permitting woes. So let’s play a game: would the bipartisan permitting bill in Congress make the path easier, or might the federal legislation be irrelevant to large hyperscalers under development today?

Meet Project Jupiter, a mega project in southern New Mexico in Dona Ana County under development by Oracle and OpenAI, with financial backing from SoftBank and political support from the Trump administration for being a part of Stargate, a major Trump administration public-private initiative boosting AI development. Project Jupiter would be one of the largest data centers in the country if completed and currently is expected to run on a microgrid powered by fuel cells converting gas to electricity, which the developers claim will burn much cleaner than a typical off-grid gas turbine power plant.

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The Trump Administration Is Still Messing with Offshore Wind Farms

And more of the week’s top news around project fights.

The United States.
Heatmap Illustration/Getty Images

1. New England (and Maryland) – The Trump administration is still messing with offshore wind farms, even while trying to pass a permitting reform deal. Examining the court filings reveals why they may feel empowered to do it — and I’m not sure how this ends.

  • Last Friday, in a legal case brought by anti-wind activists, the Justice Department submitted a motion in federal court to send the construction and operations plan for Orsted’s Revolution Wind project in New England back to the Interior Department for more analysis. On Wednesday, the DOJ entered a similar motion in another case challenging the construction and operations plan for U.S. Wind’s MarWin project off the coast of Maryland in a lawsuit brought by the state’s coastal community of Ocean City.
  • Trump’s actions led some to question whether the president was sabotaging the deal, and others to claim the media coverage itself was an attempt to kill it. Going further, supporters of the bipartisan bill claimed the DOJ's motions were precisely why the bill should become law, implying it would guard offshore wind farms against this sort of maneuver.
  • However, for the bill’s backers, it’s worth considering why the Trump administration believes it has the legal authority to do this. It’s also time to ask whether the bill would actually protect these wind farms against this tactic.
  • To answer those questions, you have to rewind. On May 1, 2025, the Interior Department withdrew a Biden solicitor’s opinion instructing the agency to “strike a rational balance” between wind power and fishing interests. This revocation document is technically not in effect at the moment; one year later, a federal court ruled the opinion was potentially illegal as a part of a preliminary injunction on five anti-renewables actions requested by solar and wind trade groups. The Trump administration is contesting that ruling, and the administration has filed a notice of appeal.
  • In August, despite that opinion being in doubt, a federal judge granted Trump permission under the Outer Continental Shelf Lands Act to remand the construction and operations plan for the now-defunct Atlantic Shores offshore wind farm in the waters of New Jersey. U.S. District Judge Jia Cobb specifically wrote that Atlantic Shores failed to demonstrate the federal government had limitations under OSCLA on revisiting these plans and that the injunction from the litigation on appeal “did not prohibit all reevaluation of agency action.”
  • In the recent Revolution and MarWin filings, Trump’s Justice Department argues the construction and operations plans should be remanded under OSCLA without being vacated. The DOJ motions include claims that previous decision documents did not adequately explain impacts to commercial fishing and other industries that use OSCLA waters. It’s not clear if the administration will win these motions.
  • The bipartisan permitting bill would bar the Interior Department and other federal agencies from taking “any new action that would revoke, rescind, withdraw, terminate, suspend, amend, or alter a federal authorization or permit in effect on or after September 16, 2026,” or “any other action to interfere with or prevent the construction or operation at full capacity of a project that has secured all necessary federal authorizations and permits.” The restriction exempts cases where “the agency is required to take such action by order of a court.” As I wrote in our lengthy piece explaining the bill, this provision has a damages component that allows companies impacted by violations to pursue financial compensation.
  • Here’s the billion-dollar question I expect we won’t have answered unless the bill language is enacted and then litigated: Would the court order exception apply to rulings that grant these motions? Or would the developers be able to sue for damages?

2. Columbia County, N.Y. – New York’s renewable energy permitting office has rejected an upstate solar farm on farmland as a House Democrat representing the area joined hands with the Trump administration in publicly railing against the project.

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These seven elections could change state energy policy.

Watching voting.
Heatmap Illustration/Getty Images

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That is not true when it comes to the other elections this year.

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