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The Federal Reserve giveth and the Federal Reserve taketh away.
Shares in climate-related companies — green hydrogen, residential solar, renewables developers — have been flagging in the past few months, and it seems like the damage may have spread to the private markets as well, where fledgling companies seek funding from individual venture capital firms.
The S&P Clean Energy Index — a group of 100 “global clean energy-related businesses from both developed and emerging markets” — has declined around 30% so far this year, compared to the broader stock market going up 12%.
While there are many different types of clean energy companies, the widespread malaise across the sector’s shares can mostly be attributed to high interest rates and changing public policy.
Many in the environmental business, advocacy, and public policy worlds are optimistic that clean energy can eventually become — or even already is — cost competitive with fossil fuels (not to mention better for the planet), but much of the sector is still both largely future oriented and heavily tied to government-provided incentives and policy preferences.
This means in sectors like hydrogen or offshore wind, big fights over tax credits and contract adjustments can meaningfully impact the future profitability of, or at least investor excitement around, clean energy companies if those battles go the “wrong” way.
The hydrogen company Plug Power is down around 45% this year, as is the residential solar company Sunrun. The energy company NextEra, which has massive wind and solar investments and is looking to be a big player in hydrogen, is down by more than a third. The Northeast energy company Avangrid, which paid $48 million to get out of an offshore wind deal in Massachusetts, is down by about a quarter this year. Orsted, the Danish wind company with projects up and down the East Coast, many now in some form of limbo due to rapidly accelerating costs, is down almost 50% this year.
And there’s evidence that capital may be becoming scarcer in the private markets as well. According to the audit and consulting firm PwC, overall funding from venture and private equity investors for climate technology companies fell by about 40%, taking it down to a level last seen five years ago.
Much of the fall can be chalked up to an overall decline in start-up funding — which fell 50% — the PWC analysis said. Indeed, the portion of all start-up investment that’s devoted to climate investments has actually gone up in the last year. This might be welcome news for the long-term prospects of the sector, but it’s still cold comfort for climate tech companies hunting for cash to stay afloat or expand.
While stock prices and business outlooks are not always the same — a stock price can decline because investors decided they were overly optimistic about a company’s prospects even if it’s still growing — there are some unifying causes to the troubles the clean tech industry is facing.
The one that pops up everywhere is interest rates, which are at the highest level in decades in the United States.
When the Federal Reserve raises interest rates and keeps them high, money becomes more expensive to borrow (just ask anyone who’s trying to buy a house right now). This matters a lot for a bevy of clean energy companies, because they often need to spend now — to, say, build a utility-scale solar array — in order to secure flows of payments in the future. When interest rates are high, funding is not only costlier, but future payments are less attractive compared to, say, buying low risk government bonds, which can offer a sizable return with less risk.
“Recently investors have been concerned that higher interest rates mean shrinking NPV, or value creation, for new renewable projects … lack of access to capital, prohibitively high renewables costs, lower renewables demand, and significantly lower value of future growth pipelines,” Morgan Stanley analysts wrote in a note earlier this week. (They ultimately described the sell-off as “overdone”).
Much of the sell-off, the Morgan Stanley analysts said, was attributable to an announcement made last month by NextEra, which is both a leading renewables company and the owner of a Florida utility. NextEra said that the growth rate of dividends paid out by an affiliated company that buys its renewable projects would be cut in half in order “to reduce financing needs and better position the partnership to continue to deliver long-term value for unitholders.”
That’s a mouthful, but it essentially means that a source of capital for a leading renewables developer is less optimistic about the business and decided to cut what it paid to its investors instead of acquiring another solar, wind, or battery project.
This announcement led to a quick, sudden decline in the company’s stock price, knocking around $30 billion off its market value and dragging the broader sector’s valuations down by about 12% soon after the announcement.
For specific companies and sectors, they’ve had their own challenges that have brought down stock prices.
Publicly traded residential solar companies have seen their valuations fall dramatically in the last year, which can be chalked up to, Morgan Stanley analysts argue, “the combination of higher interest rates and policy changes in California,” referring to a new state policy which dramatically cuts back payments to homeowners selling solar power to the electric grid. “Overall, we expect another rough quarter for residential solar companies,” Citi analysts said, in a note downgrading two solar companies, SunPower (stock down two thirds this year) and Sunnova (down 47%).
“Interest rates are highly relevant for the renewables space as installers are effectively financing companies and as renewable project expected returns are sensitive to interest rate changes,” analysts at Citi said in a note this week.
In August, Sunrun, a leader in residential solar, told investors that “recent interest rate increases, inflationary pressures, and working capital needs have prevented us from generating meaningful cash generation.”
And in offshore wind, there have been declines across the board. “The U.S. offshore wind market has run into challenges as project returns have declined due to cost inflation and higher cost of capital,” Morgan Stanley analysts said in a note. “While some offshore wind projects have proven to be NPV-negative and companies have cancelled contracts, we do not see risk of onshore wind, solar, and storage contracts facing these same issues.”
For companies looking to invest in green hydrogen, there is a lot of money being poured into the sector by the federal government, but also a lot of uncertainty around which projects will qualify for tax benefits. Morningstar analyst Brett Castelli described Plug Power as “a high-risk high-reward investment in the green hydrogen economy” with “operating losses and heavy capital investment associated with its green hydrogen network.” The company, Castelli said, would do better, “the more flexible the [federal] rules.”
There is still, of course, a tidal wave of money from the Inflation Reduction Act and Infrastructure Investment and Jobs Act set to flood into the energy sector, but there’s no guarantee it will go to specific companies or startups. Meanwhile, the rollout of the bills has been, well, let’s say methodical, as rules get written and spending programs get built out.
And that leaves investors asking “show me the money.”
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The Loan Programs Office is good for more than just nuclear funding.
That China has a whip hand over the rare earths mining and refining industry is one of the few things Washington can agree on.
That’s why Alex Jacquez, who worked on industrial policy for Joe Biden’s National Economic Council, found it “astounding”when he read in the Washington Post this week that the White House was trying to figure out on the fly what to do about China restricting exports of rare earth metals in response to President Trump’s massive tariffs on the country’s imports.
Rare earth metals have a wide variety of applications, including for magnets in medical technology, defense, and energy productssuch as wind turbines and electric motors.
Jacquez told me there has been “years of work, including by the first Trump administration, that has pointed to this exact case as the worst-case scenario that could happen in an escalation with China.” It stands to reason, then, that experienced policymakers in the Trump administration might have been mindful of forestalling this when developing their tariff plan. But apparently not.
“The lines of attack here are numerous,” Jacquez said. “The fact that the National Economic Council and others are apparently just thinking about this for the first time is pretty shocking.”
And that’s not the only thing the Trump administration is doing that could hamper American access to rare earths and critical minerals.
Though China still effectively controls the global pipeline for most critical minerals (a broader category that includes rare earths as well as more commonly known metals and minerals such as lithium and cobalt), the U.S. has been at work for at least the past five years developing its own domestic supply chain. Much of that work has fallen to the Department of Energy, whose Loan Programs Office has funded mining and processing facilities, and whose Office of Manufacturing and Energy Supply Chains hasfunded and overseen demonstration projects for rare earths and critical minerals mining and refining.
The LPO is in line for dramatic cuts, as Heatmap has reported. So, too, are other departments working on rare earths, including the Office of Manufacturing and Energy Supply Chains. In its zeal to slash the federal government, the Trump administration may have to start from scratch in its efforts to build up a rare earths supply chain.
The Department of Energy did not reply to a request for comment.
This vulnerability to China has been well known in Washington for years, including by the first Trump administration.
“Our dependence on one country, the People's Republic of China (China), for multiple critical minerals is particularly concerning,” then-President Trump said in a 2020 executive order declaring a “national emergency” to deal with “our Nation's undue reliance on critical minerals.” At around the same time, the Loan Programs Office issued guidance “stating a preference for projects related to critical mineral” for applicants for the office’s funding, noting that “80 percent of its rare earth elements directly from China.” Using the Defense Production Act, the Trump administration also issued a grant to the company operating America's sole rare earth mine, MP Materials, to help fund a processing facility at the site of its California mine.
The Biden administration’s work on rare earths and critical minerals was almost entirely consistent with its predecessor’s, just at a greater scale and more focused on energy. About a month after taking office, President Bidenissued an executive order calling for, among other things, a Defense Department report “identifying risks in the supply chain for critical minerals and other identified strategic materials, including rare earth elements.”
Then as part of the Inflation Reduction Act in 2022, the Biden administration increased funding for LPO, which supported a number of critical minerals projects. It also funneled more money into MP Materials — including a $35 million contract from the Department of Defense in 2022 for the California project. In 2024, it awarded the company a competitive tax credit worth $58.5 million to help finance construction of its neodymium-iron-boron magnet factory in Texas. That facilitybegan commercial operation earlier this year.
The finished magnets will be bought by General Motors for its electric vehicles. But even operating at full capacity, it won’t be able to do much to replace China’s production. The MP Metals facility is projected to produce 1,000 tons of the magnets per year.China produced 138,000 tons of NdFeB magnets in 2018.
The Trump administration is not averse to direct financial support for mining and minerals projects, but they seem to want to do it a different way. Secretary of the Interior Doug Burgum has proposed using a sovereign wealth fund to invest in critical mineral mines. There is one big problem with that plan, however: the U.S. doesn’t have one (for the moment, at least).
“LPO can invest in mining projects now,” Jacquez told me. “Cutting 60% of their staff and the experts who work on this is not going to give certainty to the business community if they’re looking to invest in a mine that needs some government backstop.”
And while the fate of the Inflation Reduction Act remains very much in doubt, the subsidies it provided for electric vehicles, solar, and wind, along with domestic content requirements have been a major source of demand for critical minerals mining and refining projects in the United States.
“It’s not something we’re going to solve overnight,” Jacquez said. “But in the midst of a maximalist trade with China, it is something we will have to deal with on an overnight basis, unless and until there’s some kind of de-escalation or agreement.”
A conversation with VDE Americas CEO Brian Grenko.
This week’s Q&A is about hail. Last week, we explained how and why hail storm damage in Texas may have helped galvanize opposition to renewable energy there. So I decided to reach out to Brian Grenko, CEO of renewables engineering advisory firm VDE Americas, to talk about how developers can make sure their projects are not only resistant to hail but also prevent that sort of pushback.
The following conversation has been lightly edited for clarity.
Hiya Brian. So why’d you get into the hail issue?
Obviously solar panels are made with glass that can allow the sunlight to come through. People have to remember that when you install a project, you’re financing it for 35 to 40 years. While the odds of you getting significant hail in California or Arizona are low, it happens a lot throughout the country. And if you think about some of these large projects, they may be in the middle of nowhere, but they are taking hundreds if not thousands of acres of land in some cases. So the chances of them encountering large hail over that lifespan is pretty significant.
We partnered with one of the country’s foremost experts on hail and developed a really interesting technology that can digest radar data and tell folks if they’re developing a project what the [likelihood] will be if there’s significant hail.
Solar panels can withstand one-inch hail – a golfball size – but once you get over two inches, that’s when hail starts breaking solar panels. So it’s important to understand, first and foremost, if you’re developing a project, you need to know the frequency of those events. Once you know that, you need to start thinking about how to design a system to mitigate that risk.
The government agencies that look over land use, how do they handle this particular issue? Are there regulations in place to deal with hail risk?
The regulatory aspects still to consider are about land use. There are authorities with jurisdiction at the federal, state, and local level. Usually, it starts with the local level and with a use permit – a conditional use permit. The developer goes in front of the township or the city or the county, whoever has jurisdiction of wherever the property is going to go. That’s where it gets political.
To answer your question about hail, I don’t know if any of the [authority having jurisdictions] really care about hail. There are folks out there that don’t like solar because it’s an eyesore. I respect that – I don’t agree with that, per se, but I understand and appreciate it. There’s folks with an agenda that just don’t want solar.
So okay, how can developers approach hail risk in a way that makes communities more comfortable?
The bad news is that solar panels use a lot of glass. They take up a lot of land. If you have hail dropping from the sky, that’s a risk.
The good news is that you can design a system to be resilient to that. Even in places like Texas, where you get large hail, preparing can mean the difference between a project that is destroyed and a project that isn’t. We did a case study about a project in the East Texas area called Fighting Jays that had catastrophic damage. We’re very familiar with the area, we work with a lot of clients, and we found three other projects within a five-mile radius that all had minimal damage. That simple decision [to be ready for when storms hit] can make the complete difference.
And more of the week’s big fights around renewable energy.
1. Long Island, New York – We saw the face of the resistance to the war on renewable energy in the Big Apple this week, as protestors rallied in support of offshore wind for a change.
2. Elsewhere on Long Island – The city of Glen Cove is on the verge of being the next New York City-area community with a battery storage ban, discussing this week whether to ban BESS for at least one year amid fire fears.
3. Garrett County, Maryland – Fight readers tell me they’d like to hear a piece of good news for once, so here’s this: A 300-megawatt solar project proposed by REV Solar in rural Maryland appears to be moving forward without a hitch.
4. Stark County, Ohio – The Ohio Public Siting Board rejected Samsung C&T’s Stark Solar project, citing “consistent opposition to the project from each of the local government entities and their impacted constituents.”
5. Ingham County, Michigan – GOP lawmakers in the Michigan State Capitol are advancing legislation to undo the state’s permitting primacy law, which allows developers to evade municipalities that deny projects on unreasonable grounds. It’s unlikely the legislation will become law.
6. Churchill County, Nevada – Commissioners have upheld the special use permit for the Redwood Materials battery storage project we told you about last week.