The Fed Has No Relief for Renewables Developers (or Trump)

Interest rate relief isn’t coming anytime soon for renewables. As widely expected, the Federal Reserve chose to keep rates unchanged on Wednesday, despite intense pressure from President Trump and two Republican Fed governors to lower rates.

The Fed maintained the benchmark short term rate at a range of 4.25% to 4.5%. During the press conference that followed the rate announcement, Fed Chair Jerome Powell gave no indication that the board will lower rates at the Fed’s next meeting in September, either. That’s contrary to Trump’s claims to reporters after the meeting. “We have made no decisions about September,” Powell said. “We don’t do that in advance. We’ll be taking that information into consideration and all the other information we get as we make our decision.”

High interest rates are particularly detrimental to renewable energy projects, as my colleague Matthew Zeitlin has noted many times over. The long-term benefit of renewables, of course, is that the wind and the sun are free (and effectively inexhaustible) fuel sources. The short-term tradeoff, however, is that renewables are capital-intensive, requiring high upfront costs to get up and running. The highest proportion of the lifetime cost of a renewable energy generator, such as a wind turbine or a solar farm, is in building it. Elevated interest rates make it that much more difficult to lure investors and borrow the significant capital necessary to build out renewable infrastructure.

“The lack of interest rate relief means that construction loans, which are floating-rate loans tied to market conditions, will command higher interest rates and raise the total project costs for energy developers,” Advait Arun, senior associate of energy finance at the Center for Public Enterprise and a Heatmap contributor, told me over email. “Developers rushing to build solar and wind energy between now and next summer to take advantage of tax credits will have to pay out these higher interest costs as they build.”

Though the Fed’s decision was unsurprising, the circumstances surrounding Wednesday’s meeting were out of the ordinary. For the first time since 1993, multiple Fed governors cast no votes on a rate decision. Christopher Waller and Michelle Bowman, both Republicans appointed by Trump, have voiced their preference for the Fed to lower rates by a quarter of a percentage point.

Additionally, Trump himself has been vocal about his views on chopping interest rates,— even going so far as to publicly threaten to fire Powell and appoint himself as head of the central bank, though he is legally unable to make good on his promise. Trump also recently criticized the Fed’s $2.5 billion building renovation project, singling out Powell for cost overruns. At the press conference on Wednesday, Powell emphasized the importance of the Fed’s independence from outside influence. “If you were not to have that, there’d be a great temptation of course to use interest rates to affect elections, for example,” he said.

While it may appease Trump, cutting interest rates won’t hold back the major energy price shocks that are very likely on their way. “Cutting rates sooner rather than later might make it easier for market actors to weather the coming shocks, but — crucially — they will not address the fiscal policy issues that created the shocks,” Arun noted. “However helpful rate cuts might be, they are not a solution to tariffs, tax credit uncertainty, and, soon, sharp spikes in electricity prices.”