Source: reuters.com
January 21 - Clean energy developers are pushing on with deployment plans despite stubbornly high interest rates that are squeezing profits.
Global inflation following the coronavirus pandemic and Russia's invasion of Ukraine prompted the U.S. Federal Reserve to increase its benchmark rate from 0% in March 2022 to 5.5% in July 2023. Inflation has since eased, allowing the Fed to cut its rate to 4.25-4.50% by December 2024, but it predicts just two quarter-percentage-point rate reductions in 2025 and does not expect inflation to reach its 2% target rate until 2027.
Capex costs represent a higher share of costs for clean energy projects than for fossil fuel plants, making them particularly sensitive to high interest rates.
As borrowing becomes more expensive, clean energy developers "are put under greater financial pressure, with profits squeezed and the most leveraged companies at risk of default," the International Energy Agency (IEA) noted in August.
Despite the high cost of finance, global clean energy investment continued to rise in 2024, the IEA said.
CHART: Annual global investments in clean energy, fossil fuels
U.S. President Donald Trump has cast a cloud over the clean energy sector by announcing a flurry of executive orders rolling back Biden's climate agenda, but years of cost reductions in clean power have bolstered the underlying fundamentals.
U.S. deployment of solar, wind and battery storage has remained strong due to "tax credits and favourably-priced [power purchase agreements]" that have allowed for "adequate returns," Eric Cohen, Head of Green Economy Banking, North America for J.P. Morgan, told Reuters Events.
