Heard on the Street: Rising interest rates are just one of many factors that could throw a wrench in wind and solar developers’ plans
After years of uncertainty, last year’s Inflation Reduction Act finally gave America’s renewable-energy industry a long, green signal. Now the economy is blocking the road.
Wind and solar projects are especially sensitive to rates because debt can comprise as much as 85% to 90% of capital expenditures. Renewable developers have known only low rates for most of their history. Nearly all U.S. utility-scale solar facilities and 85% of onshore wind farms were installed since 2009, during which period the target federal-funds rate was close to 0% in eight out of 13 years.
After falling to a record low in 2020, the average price of a solar photovoltaic system rose in 2021 and then again in 2022, according to data from the Solar Energy Industries Association and Wood Mackenzie. Meanwhile, the average cost to build an onshore wind farm in the U.S. rose in 2020 and 2021 before leveling off last year, according to data from BloombergNEF. Supply-chain issues and interconnection delays already started slowing the clean power industry last year: In 2022 it installed 25.
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