Sign In or Create an Account.

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

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.

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.”

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
Podcast

Heatmap’s Annual Climate Insiders Survey Is Here

Rob takes Jesse through our battery of questions.

A person taking a survey.
Heatmap Illustration/Getty Images

Every year, Heatmap asks dozens of climate scientists, officials, and business leaders the same set of questions. It’s an act of temperature-taking we call our Insiders Survey — and our 2026 edition is live now.

In this week’s Shift Key episode, Rob puts Jesse through the survey wringer. What is the most exciting climate tech company? Are data centers slowing down decarbonization? And will a country attempt the global deployment of solar radiation management within the next decade? It’s a fun one! Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.

Keep reading...Show less
Green
The Insiders Survey

Climate Insiders Want to Stop Talking About ‘Climate Change’

They still want to decarbonize, but they’re over the jargon.

Climate protesters.
Heatmap Illustration/Getty Images

Where does the fight to decarbonize the global economy go from here? The past 12 months, after all, have been bleak. Donald Trump has pulled the United States out of the Paris Agreement (again) and is trying to leave a precursor United Nations climate treaty, as well. He ripped out half the Inflation Reduction Act, sidetracked the Environmental Protection Administration, and rechristened the Energy Department’s in-house bank in the name of “energy dominance.” Even nonpartisan weather research — like that conducted by the National Center for Atmospheric Research — is getting shut down by Trump’s ideologues. And in the days before we went to press, Trump invaded Venezuela with the explicit goal (he claims) of taking its oil.

Abroad, the picture hardly seems rosier. China’s new climate pledge struck many observers as underwhelming. Mark Carney, who once led the effort to decarbonize global finance, won Canada’s premiership after promising to lift parts of that country’s carbon tax — then struck a “grand bargain” with fossiliferous Alberta. Even Europe seems to dither between its climate goals, its economic security, and the need for faster growth.

Now would be a good time, we thought, for an industry-wide check-in. So we called up 55 of the most discerning and often disputatious voices in climate and clean energy — the scientists, researchers, innovators, and reformers who are already shaping our climate future. Some of them led the Biden administration’s climate policy from within the White House; others are harsh or heterodox critics of mainstream environmentalism. And a few more are on the front lines right now, tasked with responding to Trump’s policies from the halls of Congress — or the ivory minarets of academia.

We asked them all the same questions, including: Which key decarbonization technology is not ready for primetime? Who in the Trump administration has been the worst for decarbonization? And how hot is the planet set to get in 2100, really? (Among other queries.) Their answers — as summarized and tabulated by my colleagues — are available in these pages.

Keep reading...Show less
Green
The Insiders Survey

Will Data Centers Slow Decarbonization?

Plus, which is the best hyperscaler on climate — and which is the worst?

A data center and renewable energy.
Heatmap Illustration/Getty Images

The biggest story in energy right now is data centers.

After decades of slow load growth, forecasters are almost competing with each other to predict the most eye-popping figure for how much new electricity demand data centers will add to the grid. And with the existing electricity system with its backbone of natural gas, more data centers could mean higher emissions.

Keep reading...Show less